ETFs, trackers and ISA basic pros & cons

[raybarrow]

Hi Folks,
Another ISA year is upon us and I am looking to increase my investment in passive trackers over the coming months. I have a FTSE100 and an All World tracker. I hvae other funds but the question is about ETFs and non-Etfs. I've been thinking about European and Asia/Pacific trackers option for a bit of variety. I appreciate simplicity but I also like a bit of variety (I am reducing my low performing shares over time).
I am after a bit of clarity on ETFs. Given that fees/costs/performance being equal am I right in thinking that the main differences between ETFs and 'normal' trackers are:
1. ETFs are bought/sold with immediate effect which will go up or down five minutes later, normal trackers at a fixed point in the day at one price. Not a major problem for the long term passive investor, but ETF could be 'cashed in' immediately if rquired.
2. I've seen somwhere on here that ETFs can require more 'careful' record keeping for Self Assessment for HMRC. If held in an ISA I presume they can be safley ignored for SA reporting.
3. Any other major concern I should think about.

All comment appreciated,
Ray.

[xxd09]

Trackers come in many forms
Originally often came in fund form-prices reconciled at end of every day and trading ie buying and selling units of fund can take over 2-3 days
ETF are really the same beast but with their different structure can be traded instantly ie like buying and selling a share
ETFs have become more popular but as investors who buy trackers are buy and hold types who trade infrequently the differences are of minimal importance
As always buy global,keep costs as low as possible ,invest inside a tax free wrapper ie ISAs and SIPPs and save as much as you can and don’t meddle/trade
xxd09

[Gumble]

Also look at the costs, not just the fund cost but the platform cost which often treat ETFs differently to non ETFs. For me, ETFs work out better in that respect.
Gumble

[scrumpyjack]

Not sure what you mean by 'normal tracker' but the ETF structure has a number of advantages over 'funds' (aka unit trusts) and Investment trusts.
They can be dealt in at firm prices any time the markets are open (unlike unit trusts), have the same low platform cost as shares (unlike unit trusts) on most platforms, do not incur stamp duty (unlike investment trusts) etc.

There are some ultra low cost ETF trackers for the main indexes.

I have always avoided all unit trusts, mainly for cost reasons, but there may now be some that are better value (I haven't bothered to check in the last 20 years or so!)

[GeoffF100]

I have a FTSE100 and an All World tracker. I hvae other funds but the question is about ETFs and non-Etfs. I've been thinking about European and Asia/Pacific trackers option for a bit of variety.

That will not give any extra variety. You already hold all those shares in your all world tracker.

Given that fees/costs/performance being equal am I right in thinking that the main differences between ETFs and 'normal' trackers are:
1. ETFs are bought/sold with immediate effect which will go up or down five minutes later, normal trackers at a fixed point in the day at one price. Not a major problem for the long term passive investor, but ETF could be 'cashed in' immediately if rquired.
2. I've seen somwhere on here that ETFs can require more 'careful' record keeping for Self Assessment for HMRC. If held in an ISA I presume they can be safley ignored for SA reporting.
3. Any other major concern I should think about..

ETFs are sometimes more expensive than OEICs, and sometimes cheaper. ETFs have a market spread, whereas OEICs do not. ETFs can trade at a discount or a premium to NAV. OEICs trade at NAV plus or minus the cost of net purchases and withdrawals on the day. OEICs can have trading suspended, whereas ETFs continue trading at a discount. OEICs have equalisation, whereas ETFs do not. ETFs are not UK domiciled, which complicates the tax (the same is true for many OEICs, indeed a majority of Vanguard OEICS on the UK retail market). Market makers will not deal at quote for large (usually <£100K) ETF trades, but you can trade £millions with OEICs at the same price as everyone else.

[gpadsa]

Market makers will not deal at quote for large (usually <£100K) ETF trades,

I was intrigued & chose to educate myself through the medium of chatgpt - does this look right (I feel I have got the veneer of education if sadly not any experience)?

Market makers may not deal at quote for large ETF trades for a few reasons:

1. Liquidity: Market makers may not have enough inventory or liquidity to fill a large ETF trade at the quoted price. If the trade is too large, the market maker may need to source inventory from other market participants or adjust their quote to reflect the market conditions.
2. Risk: Market makers are taking on risk when they facilitate trades, and large trades can carry more risk. Market makers may be hesitant to take on a large trade at the quoted price if they believe that the market may move against them before they are able to offload their position.
3. Impact on the Market: Large trades can have a significant impact on the market and may cause the price of the ETF to move. If a market maker were to facilitate a large trade at the quoted price, it could potentially move the market against them, leading to losses.

As a result, market makers may adjust their quote or negotiate with the trader to find a price that is more favorable for both parties. This negotiation process can be common for large trades and is often referred to as "price discovery."

(It classes 'large' is a significant fraction of daily volume.)

gpadsa

[GeoffF100]

The context for large here is the Exchange Market Size for the ETF. Market makers are obligated to deal at quote below that, but they may be willing to deal at quote for larger trades. You can, of course, split trades up. Institutional investors have to trickle their huge stock trades into the market. They can act as Authorised Participants for ETFs, in which case the ETF is effectively an open ended fund to them.

[gpadsa]

Great, thanks - that makes sense. Invisible to the retail punter I guess?

gpadsa