Vanguard questions...

[Mike4]

I only have the haziest grasp of the nature or structure of the Vanguard funds, the LifeStrategy® 20% Equity Fund in particular as I have a few bob in it, inside as ISA.

There are two really basic questions I've failed to find the answers to, perhaps because they are so basic, no-one here or on the Vanguard realises there are people who don't know. So, relying on the principle that there is no such thing as a dumb question, here goes:

1) Taking the LifeStrategy® 20% Equity Fund as an example, I thought I was buying an investment trust but looking more closely, it appears not. I'm not sure why I thought this, but having spent an hour or so trawling the Vanguard site I think, but am still not sure, that this fund is actually a pool of investor money being invested in some PLCs and some bonds by Vanguard fund manager(s), some of which might be ITs. But the fund itself is not an investment trust. Is this anywhere close to correct?

2) I have picked up along the way the impression that one does not need a Vanguard account to invest in Vanguard funds, one can buy them on other platforms too. is this correct? If so, how does it work unless the funds are themselves are ITs? I feel like there is something fundamental I'm failing to grasp.

Many thanks for any clarification anyone can offer...

[Lootman]

Vanguard runs no investment trusts to my knowledge. ITs are in any event a peculiarly British thing and Vanguard's UK funds are essentially variants of their US domestic offerings.

Vanguard in the UK offers traditional open-ended funds and ETFs, both of which are passively managed. They do run active funds in the US but I am not aware they do in the UK, unless you count their LifeStrategy funds as active.

Both their OEICs and ETFs are available on a variety of platforms and sharedealing accounts, as well as directly from Vanguard.

[Backache]

I don't have full knowledge of American Investments by any means but when reading American Investment books such as Burton Malkiel's he talked about Closed end funds which sounded similar to IT's
Getting to Vanguard things like Life Strategy are basically a fund of funds where they blend and rebalance various Index funds to achieve a goal at low cost.
Although they do not have IT's they do now have active funds where the management is contracted out to management groups such as Bailllie Gifford and Wellington and the funds are low cost.

[SalvorHardin]

I don't have full knowledge of American Investments by any means but when reading American Investment books such as Burton Malkiel's he talked about Closed end funds which sounded similar to IT's

Yes, closed end funds are America's equivalent of investment trusts.

But be careful. American tax law regarding open ended and closed end funds makes shareholders liable for tax upon their share of the fund's realised capital gains and income. You end up getting capital gains tax demands from the IRS every year and that is the proverbial PITA. By contrast, there's no liability for gains when an investment trust sells an investment - investors only get caught for CGT on any gain when they sell their IT shares.

I wouldn't touch an American domiciled fund of any sorts with a bargepole. The tax consequences and bureaucracy for UK taxpayers are awful. I have enough problems with Brookfield Asset Management regularly spinning off shares in limited liability partnerships (LLP) which I then have to sell PDQ (otherwise if you receive a dividend from a LLP it is taxable as earnings in America and you have to submit an American tax return).

[AleisterCrowley]

I

2) I have picked up along the way the impression that one does not need a Vanguard account to invest in Vanguard funds, one can buy them on other platforms too. is this correct?

...

Correct. I hold several Vanguard ETFs in my HSDL ISA. They just 'look like' any other share (GSK, BT etc)

[monabri]

The vanguard lifestrategy 20% fund appears to come in 2 flavours :

an Income fund
https://www.hl.co.uk/funds/fund-discoun ... ity-income

or

an as Accumulation fund.
https://www.hl.co.uk/funds/fund-discoun ... cumulation

You can confirm which one you have as their (current) prices are different.

Income fund = 15133 pence (approx)
Accumulation fund = 17436 pence (approx)

The fund is an "OEIC" - https://www.investopedia.com/terms/o/oeic.asp

(It is not an ETF (Exchange Traded Fund) nor an Investment Trust. Vanguard do sell a lot of ETFs, example VWRL is quite a common one mentioned hereabouts.)

In the case of the Accumulation fund : Your money is apportioned (this is the Hargreaves Lansdown data (see link above) but it gives an overview)
here's the top 10 holdings (of a total of 13).

(It is worth click on the "Fund Analysis " tab in the Hargreaves Lansdown link as it provides a pie chart of where the money is allocated).



As you know, the Vanguard Lifestrategy 20% fund indicates the percentage holding in shares (equities) with the rest held in bonds/gilts. There are more racier versions of the Lifestrategy funds where 40%,60%,80%,100% are equities.

For comparison , here's the racier "100% equities" Lifestrategy 100 version (the top 10 holdings of 10).

https://www.hl.co.uk/funds/fund-discoun ... cumulation

It's very different!




As others have mentioned, Vanguard's products are quite readily available other than directly on the Vanguard website.

You say the fund is in an ISA...so no need to worry about tax aspects relating to the domicile of the fund.

[DavidM13]

Yes, US CEFs are closest to UK ITs. There are currently 466 of them. Only 140 are equity investment companies, the vast majority invest purely in Fixed Income.

Agree also that holding American shares is a nightmare. I had shares in an American company I used to work for and had to keep filling in all sorts of forms WB18 or WB14 or some such that never seemed to arrive and often needed renewing, or was threatened with ludicrous amounts to be withheld from me.

[monabri]

From Vanguard's UK website

https://www.vanguardinvestor.co.uk/inve ... _fund_link

"The Fund seeks to hold investments that will pay out money and increase in value through a portfolio comprising approximately 20% shares and 80% bonds.

The Fund gains exposure to shares and bonds and other similar fixed income investments by investing more than 90% of its assets in Vanguard passive funds that track an index (“Associated Schemes”). Direct investment in shares and bonds and other similar fixed income investments may also be made.

The Fund is actively managed in that the Investment Adviser has discretion in respect of the Associated Schemes in which the Fund may invest and the allocations to them, each of which may change over time. The Investment Adviser manages the Fund through the pre-determined exposure to shares and bonds (and other similar fixed income investments), as detailed above.

The Fund will have exposure to shares of UK companies and non-UK companies (including emerging markets (i.e. countries that are progressing toward becoming advanced, usually shown by some development in financial markets, the existence of some form of stock exchange and a regulatory body)), and to Sterling-denominated and non-Sterling denominated bonds (including government bonds, index-linked bonds and UK investment-grade bonds). The UK will generally form one of the largest single country exposures for shares and bonds.
The Fund attempts to remain fully invested and hold small amounts of cash except in extraordinary market, political or similar conditions where the Fund may temporarily depart from this investment policy"

[mc2fool]

I feel like there is something fundamental I'm failing to grasp.

Many thanks for any clarification anyone can offer...

I'll bet you're even more confused now.

Yes, what you seem to be missing is an understanding of the different type of collective investment structures available in the UK. I was hoping to find an ITs vs OEICs vs UTs vs ETFs beginners explanation somewhere but can't on a quick google so...

There are 4 main retail collective investment vehicle types in the UK (and some others, but let's stay with the four main ones for now )

Investment Trusts (ITs) are closed ended investment companies. "Closed" means that they have a fixed amount of capital which they invest and a fixed number of shares in issue. Now actually "fixed" isn't absolute, but day-to-day (and for the purposes of explanation!) the number of shares of an IT in issue is fixed, and you buy & sell them on the secondary market. I.e. you don't buy/sell shares from/to the Investment Trusts itself, but from/to some other investor on the London Stock Exchange. ITs are, for all intents-and-purposes, just like "regular" companies, like BP or Unilever, etc, except that instead of being in the oil or soap powder business they are in the investing business. ITs also get some tax breaks, but let's not complicate things.

Open Ended Investment Companies (OEICs, pronounced "oiks") are, as the name says, open ended investment companies. "Open" means that the amount of capital which they invest and their number of shares issued changes with investor demand, and you buy/sell them from/to the OEIC itself. If you want to buy you hand the OEIC your dosh and they create some new shares which they give to you and then add your funds to the amount of capital they invest, and vice versa when you want to sell. It is true that it's only possible to buy/sell, e.g. Vanguard OEICs from/to Vanguard -- there is no secondary market for OEICs -- however most retail brokers have a relationship with most OEIC providers so that they can buy/sell them on your behalf, so in effect you can buy/sell Vanguard OEICs via most brokers.

Units Trusts (UTs) are very similar to OEICs, with the exception that they are legally structured as a trust, rather than as a company, and, importantly for the investor, whereas OEICs have "single pricing", i.e. the same price to buy and sell shares, UTs have bid-offer spreads. Also, with UTs what you buy/sell are called units, rather than shares.

Exchange Traded Funds (ETFs) are a bit of mix. They are technically open ended vehicles but it's only institutions that buy/sell directly from/to the ETF itself. Day to day, and for the retail investor, they are more like closed end funds in that you buy & sell them on the secondary market, i.e. the London Stock Exchange.

Now, one important difference between ITs & ETFs (traded on the secondary market) and OEICs & UTs (bought/sold from/to their provider) is that, as with "normal" shares, with ITs & ETFs you can buy "live", which means you put in the trade to your broker and it then gives you a price which you have 15 seconds to accept or not, and if you do that's the price the deal is struck at. OEICs & UTs on the other hand have what is called "forward pricing", which means that you put in the trade to your broker, who then passes it on to the OEICs & UTs provider for their next pricing point, which is usually just once a day most often at 12 noon, and you get told how many shares/units you bought (or how much you got for the ones you sold) a day or two after that.

There are, of course, more details of all of those to go into, but hopefully that's given you enough to go searching for the buzz phrases to find out more, and to ask further questions.

BTW, Vanguard have some OEICs, some UTs, and some ETFs, but no ITs.

[Mike4]

I feel like there is something fundamental I'm failing to grasp.

Many thanks for any clarification anyone can offer...

I'll bet you're even more confused now.

Yes, what you seem to be missing is an understanding of the different type of collective investment structures available in the UK. I was hoping to find an ITs vs OEICs vs UTs vs ETFs beginners explanation somewhere but can't on a quick google so...

There are 4 main retail collective investment vehicle types in the UK (and some others, but let's stay with the four main ones for now )

Investment Trusts (ITs) are closed ended investment companies. "Closed" means that they have a fixed amount of capital which they invest and a fixed number of shares in issue. Now actually "fixed" isn't absolute, but day-to-day (and for the purposes of explanation!) the number of shares of an IT in issue is fixed, and you buy & sell them on the secondary market. I.e. you don't buy/sell shares from/to the Investment Trusts itself, but from/to some other investor on the London Stock Exchange. ITs are, for all intents-and-purposes, just like "regular" companies, like BP or Unilever, etc, except that instead of being in the oil or soap powder business they are in the investing business. ITs also get some tax breaks, but let's not complicate things.

Open Ended Investment Companies (OEICs, pronounced "oiks") are, as the name says, open ended investment companies. "Open" means that the amount of capital which they invest and their number of shares issued changes with investor demand, and you buy/sell them from/to the OEIC itself. If you want to buy you hand the OEIC your dosh and they create some new shares which they give to you and then add your funds to the amount of capital they invest, and vice versa when you want to sell. It is true that it's only possible to buy/sell, e.g. Vanguard OEICs from/to Vanguard -- there is no secondary market for OEICs -- however most retail brokers have a relationship with most OEIC providers so that they can buy/sell them on your behalf, so in effect you can buy/sell Vanguard OEICs via most brokers.

Units Trusts (UTs) are very similar to OEICs, with the exception that they are legally structured as a trust, rather than as a company, and, importantly for the investor, whereas OEICs have "single pricing", i.e. the same price to buy and sell shares, UTs have bid-offer spreads. Also, with UTs what you buy/sell are called units, rather than shares.

Exchange Traded Funds (ETFs) are a bit of mix. They are technically open ended vehicles but it's only institutions that buy/sell directly from/to the ETF itself. Day to day, and for the retail investor, they are more like closed end funds in that you buy & sell them on the secondary market, i.e. the London Stock Exchange.

Now, one important difference between ITs & ETFs (traded on the secondary market) and OEICs & UTs (bought/sold from/to their provider) is that, as with "normal" shares, with ITs & ETFs you can buy "live", which means you put in the trade to your broker and it then gives you a price which you have 15 seconds to accept or not, and if you do that's the price the deal is struck at. OEICs & UTs on the other hand have what is called "forward pricing", which means that you put in the trade to your broker, who then passes it on to the OEICs & UTs provider for their next pricing point, which is usually just once a day most often at 12 noon, and you get told how many shares/units you bought (or how much you got for the ones you sold) a day or two after that.

There are, of course, more details of all of those to go into, but hopefully that's given you enough to go searching for the buzz phrases to find out more, and to ask further questions.

BTW, Vanguard have some OEICs, some UTs, and some ETFs, but no ITs.

Many thanks mc2fool for such a wonderfully clear and succinct crash course. I can't tell you how much I appreciate your post.

Worth so many more than the just one rec I can give ))

[GeoffF100]

You say the fund is in an ISA...so no need to worry about tax aspects relating to the domicile of the fund.

Yes you do. The domicile of the fund affects withholding tax. The funds on Vanguard's UK site should all be fine. As others have said, you can hold them on other platforms. iWeb for be cheaper for large accounts.

[monabri]

You say the fund is in an ISA...so no need to worry about tax aspects relating to the domicile of the fund.

Yes you do. The domicile of the fund affects withholding tax. The funds on Vanguard's UK site should all be fine. As others have said, you can hold them on other platforms. iWeb for be cheaper for large accounts.

Even in an ISA? (there's no real sensible way of clawing the with-holding tax back as I understand it for the average retail client if it is even possible). In a non _ISA account (and depending on the holding size and dividend, there might be a need to declare the income via a tax return (it was this part I was really thinking of in relation to "domicile" of the fund).

(iWeb would be cheaper than holding on VG, I believe).

[GrahamPlatt]

You say the fund is in an ISA...so no need to worry about tax aspects relating to the domicile of the fund.

Yes you do. The domicile of the fund affects withholding tax. The funds on Vanguard's UK site should all be fine. As others have said, you can hold them on other platforms. iWeb for be cheaper for large accounts.

Even in an ISA? (there's no real sensible way of clawing the with-holding tax back as I understand it for the average retail client if it is even possible). In a non _ISA account (and depending on the holding size and dividend, there might be a need to declare the income via a tax return (it was this part I was really thinking of in relation to "domicile" of the fund).

(iWeb would be cheaper than holding on VG, I believe).

I think it’s called a withholding tax for a reason - it’s not “clawed back” it’s withheld in the first place - i.e. not paid to your account.

[GeoffF100]

You say the fund is in an ISA...so no need to worry about tax aspects relating to the domicile of the fund.

Yes you do. The domicile of the fund affects withholding tax. The funds on Vanguard's UK site should all be fine. As others have said, you can hold them on other platforms. iWeb for be cheaper for large accounts.

Even in an ISA? (there's no real sensible way of clawing the with-holding tax back as I understand it for the average retail client if it is even possible).

An ISA gives protects us against some UK taxes. (We still pay stamp duty in an ISA. We used to get back some of the corporation tax paid by the companies, but that no longer happens.) An ISA gives no protection against taxes levied by foreign countries, notably withholding tax. Tax treaties allow some witholding tax to be claimed back. Vanguard seems to be good at that, but some other fund managers are less good. Some funds are domiciled in countries that do not have good tax treaties. The UK used to charge stamp duty on ETFs. The result was that there were no UK domiciled ETFs. The fund prospectus should have a section on tax.

[NotSure]

Vanguard in the UK offers traditional open-ended funds and ETFs, both of which are passively managed. They do run active funds in the US but I am not aware they do in the UK, unless you count their LifeStrategy funds as active.

Vanguard do run a small handful of active funds in the UK, at least on their own platform. Some are equity, some bonds and at least one is blended. They are quite cheap, for active, but generally have a tiny market cap compared compared to their ETFs/OIECs.

The active ones are flagged on this page: https://www.vanguardinvestor.co.uk/what-we-offer/index-active-products.

I hold their active balanced fund - seemed a good place to start for a total newbie. I have since tended towards passive index global equity funds, but still hold the balanced fund as it has done quite well so far. Some of their active funds are co-managed by Ballie Gifford, some are interesting as they have two managers, one value oriented, the other growth.

[dmukgr]

I'm more confused than when I started reading this thread.

So if I want to buy Vanguard Life Strategy 80/20, can I do that through my broker (HSBC)? and what is the epic?

If I do buy it, as a UK domiciled person do I have anything to worry about tax wise if I don't have it in an ISA?

Why the questions?, well I currently have £100k in Premium Bonds that will make up the wife and I's next two and a half years ISA subscriptions and I'm wondering where to park the money in the meantime (or just leave it where it is) before going into my IT portfolio.

[Alaric]

So if I want to buy Vanguard Life Strategy 80/20, can I do that through my broker (HSBC)? and what is the epic?

If I do buy it, as a UK domiciled person do I have anything to worry about tax wise if I don't have it in an ISA?

You look it up under the list of OEICs that HSBC will buy and sell on your behalf.

As regards tax, it's going to produce dividends and possibly interest. These will count against the £ 2000 allowance for dividends and £ 1000 allowance for interest ( £ 500 for higher rate payers). You don't avoid this by buying accumulation units, rather you have the extra headache of transcribing the amounts from the annual statements sent by HSBC and keeping track of the accumulated reinvested amounts.

[monabri]

I'm more confused than when I started reading this thread.

So if I want to buy Vanguard Life Strategy 80/20, can I do that through my broker (HSBC)? and what is the epic?

If I do buy it, as a UK domiciled person do I have anything to worry about tax wise if I don't have it in an ISA?

Why the questions?, well I currently have £100k in Premium Bonds that will make up the wife and I's next two and a half years ISA subscriptions and I'm wondering where to park the money in the meantime (or just leave it where it is) before going into my IT portfolio.

The VLS80/20 fund is marked as being "agressive" as it is 80% equities (I assume you meant 80/20 rather than 20/80). For a short term investment of a year or so, the 80/20 seems "risky"....

You very likely can buy it through HSBC but it won't have an epic (such as "ULVR" = Unilever, or RDSB = Shell). Instead, you will have to select it from a list of HSBC's funds or type in the "ISIN" code GB00B4PQW151.

In my Interactive Investor account (redacted account number) I enter the ISIN number for the Fund.





The tax implications in a non-ISA account: (my understanding - if other Lemons could confirm?)

The yield on VLS80/20 reports to be 1.31% but these are re-invested back. However, for tax reporting you might have to report the dividend if you have other taxable dividends which exceed the individual £2k allowance.

So, if you invest £50k, you might individually expect £655 dividends re-invested back into your fund to buy more units. But this is a benefit you have received so it is potentially declarable to HMRC. So, you have headroom of a further £1345 of dividends from other shares before having to declare to HMRC via a tax return.

[dmukgr]

Thanks guys - the question of tax was more for it being American and the comments earlier in the thread about US tax law etc.

With reference to it being aggressive given it is only for the short term, my thinking was that as it is going into equities, in one sense it doesn't matter as if it tanks then I would be buying the roughly the same amount of IT shares anyway in that they should have also tanked. If it rockets up then I have change left over - so effectively I would be hedging against a rising market if I don't just keep the premium bonds for now.

[mc2fool]

In my Interactive Investor account (redacted account number) I enter the ISIN number for the Fund.

Should you be so inclined. Or you can just type in "vanguard lifestrategy 8" and it will give you the choice of the 80% ACC and INC classes.

The yield on VLS80/20 reports to be 1.31% but these are re-invested back. However, for tax reporting you might have to report the dividend if you have other taxable dividends which exceed the individual £2k allowance.

So, if you invest £50k, you might individually expect £655 dividends re-invested back into your fund to buy more units. But this is a benefit you have received so it is potentially declarable to HMRC. So, you have headroom of a further £1345 of dividends from other shares before having to declare to HMRC via a tax return.

AND you have to keep track of the effect of those accumulated dividends on your cost base for CGT purposes, so you don't get double-taxed!