Donate to Remove ads

Got a credit card? use our Credit Card & Finance Calculators

Thanks to johnstevens77,Bhoddhisatva,scotia,Anonymous,Cornytiv34, for Donating to support the site

Same Tracker --- What's the difference

Index tracking funds and ETFs
artengill
Posts: 11
Joined: December 2nd, 2016, 11:17 am
Has thanked: 2 times
Been thanked: 2 times

Same Tracker --- What's the difference

#346899

Postby artengill » October 11th, 2020, 11:47 am

Hi,

I'm interested in investing in a FTSE 250 tracker fund. There are several companies providing this fund. Which one do I go for? Surely the only reason to choose a particular company is the one with the lowest fees. Why is my investment company recommending the "ABC" fund and not the "XYZ" offering?

Thanks Mike

JohnB
Lemon Quarter
Posts: 2497
Joined: January 15th, 2017, 9:20 am
Has thanked: 677 times
Been thanked: 997 times

Re: Same Tracker --- What's the difference

#346904

Postby JohnB » October 11th, 2020, 12:07 pm

You should research "tracking error". A well managed fund will keep closer to the index, a poorer one could be high or low. But really fees are all. And ETFs often have cheaper broker charges than funds.

kiloran
Lemon Quarter
Posts: 4092
Joined: November 4th, 2016, 9:24 am
Has thanked: 3234 times
Been thanked: 2827 times

Re: Same Tracker --- What's the difference

#346905

Postby kiloran » October 11th, 2020, 12:12 pm

JohnB wrote: But really fees are all. And ETFs often have cheaper broker charges than funds.

And no stamp duty

A FTSE-250 ETF: https://www.hl.co.uk/shares/shares-sear ... -ucits-etf

--kiloran

Steveam
Lemon Slice
Posts: 974
Joined: March 18th, 2017, 10:22 pm
Has thanked: 1746 times
Been thanked: 534 times

Re: Same Tracker --- What's the difference

#346932

Postby Steveam » October 11th, 2020, 2:15 pm

I hold VMID from Vanguard. This is FTSE 250 ETF. Both brokers I use treat ETFs like ordinary shares in terms of costs, dividend management etc. The only (slight) issue with ETFs outside a protected wrapper is that they occasionally report “excess reportable income” and this needs to be accounted for to HMRC.

Best wishes,

Steve

Lootman
The full Lemon
Posts: 18681
Joined: November 4th, 2016, 3:58 pm
Has thanked: 628 times
Been thanked: 6564 times

Re: Same Tracker --- What's the difference

#346933

Postby Lootman » October 11th, 2020, 2:22 pm

Steveam wrote:I hold VMID from Vanguard. This is FTSE 250 ETF. Both brokers I use treat ETFs like ordinary shares in terms of costs, dividend management etc. The only (slight) issue with ETFs outside a protected wrapper is that they occasionally report “excess reportable income” and this needs to be accounted for to HMRC.

My accountant described the ERI issue as "negligible" unless you hold one of the fairly rare ETFs that have accumulation units (which I always try and avoid in a taxable account anyway for other reasons).

His clear implication to me was that HMRC would not be very interested in some technical inaccuracies due to ERI, particularly since they would even out over the years.

However if that bothers you then only hold ETFs in a tax-sheltered account. Some might do that anyway since ETF income is technically classifed as "foreign" income due to the overseas domicile of ETFs.

Alaric
Lemon Half
Posts: 6035
Joined: November 5th, 2016, 9:05 am
Has thanked: 20 times
Been thanked: 1400 times

Re: Same Tracker --- What's the difference

#346955

Postby Alaric » October 11th, 2020, 4:26 pm

Lootman wrote:However if that bothers you then only hold ETFs in a tax-sheltered account. Some might do that anyway since ETF income is technically classifed as "foreign" income due to the overseas domicile of ETFs.


Hold the ETFs in a taxed account and they can be used for CGT Allowance harvesting. You sell one brand of ETF of your index of choice and buy another. That will rebase the book cost and incur a realised capital gain or loss without much or any change of investments.

swill453
Lemon Half
Posts: 7962
Joined: November 4th, 2016, 6:11 pm
Has thanked: 984 times
Been thanked: 3643 times

Re: Same Tracker --- What's the difference

#346965

Postby swill453 » October 11th, 2020, 5:07 pm

Would anyone be able to estimate the expected total cost of selling £60K of iShares FTSE 250 tracker MIDD and buying the same amount in Vanguard VMID?

This thread has reminded me that I've been meaning to do this, because the iShares one has higher charges. I can work out what the difference in charges is, I just need to know how much of a hit I'll take for the change.

It's in an AJBell SIPP, so dealing charges will be £9.95 per trade. It's really the expected loss due to the bid/offer spread that I'm unsure of. And if there would be anything else to take into consideration.

(This may be hypothetical as I may take the opportunity to buy something else anyway.)

Scott.

scrumpyjack
Lemon Quarter
Posts: 4816
Joined: November 4th, 2016, 10:15 am
Has thanked: 606 times
Been thanked: 2675 times

Re: Same Tracker --- What's the difference

#346971

Postby scrumpyjack » October 11th, 2020, 5:26 pm

swill453 wrote:Would anyone be able to estimate the expected total cost of selling £60K of iShares FTSE 250 tracker MIDD and buying the same amount in Vanguard VMID?

This thread has reminded me that I've been meaning to do this, because the iShares one has higher charges. I can work out what the difference in charges is, I just need to know how much of a hit I'll take for the change.

It's in an AJBell SIPP, so dealing charges will be £9.95 per trade. It's really the expected loss due to the bid/offer spread that I'm unsure of. And if there would be anything else to take into consideration.

(This may be hypothetical as I may take the opportunity to buy something else anyway.)

Scott.


You need also to consider the market makers spread as part of the cost. I have holdings in MIDD, VMID and HMCX (all FTse250 trackers). I think because I bought whichever had the lowest charges at the time.

swill453
Lemon Half
Posts: 7962
Joined: November 4th, 2016, 6:11 pm
Has thanked: 984 times
Been thanked: 3643 times

Re: Same Tracker --- What's the difference

#346974

Postby swill453 » October 11th, 2020, 5:47 pm

scrumpyjack wrote:You need also to consider the market makers spread as part of the cost.

That's exactly what I'm asking for!

Scott.

scrumpyjack
Lemon Quarter
Posts: 4816
Joined: November 4th, 2016, 10:15 am
Has thanked: 606 times
Been thanked: 2675 times

Re: Same Tracker --- What's the difference

#346980

Postby scrumpyjack » October 11th, 2020, 6:21 pm

Sorry, brain not awake. Easy in dealing hours to look at the quote online at your broker.

JohnW
Lemon Slice
Posts: 506
Joined: June 1st, 2019, 7:00 am
Has thanked: 5 times
Been thanked: 176 times

Re: Same Tracker --- What's the difference

#347007

Postby JohnW » October 11th, 2020, 9:57 pm

artengill wrote:Surely the only reason to choose a particular company is the one with the lowest fees.

Additionally, and in other words: size of the fund (is it shrinking?), liquidity, size and volume of daily sales, number of market makers, past history of fee changes, whether this is the fund owner's core business (or are they cashing in on a new investing trend?), is the fund synthetic, full replication, how much securities lending does the fund do, frequency of dividends or distributions (more or less paperwork or you), does choosing them diversify or concentrate your risk of being with one business? Depending on where you live, is it currency hedged?

Steveam
Lemon Slice
Posts: 974
Joined: March 18th, 2017, 10:22 pm
Has thanked: 1746 times
Been thanked: 534 times

Re: Same Tracker --- What's the difference

#347039

Postby Steveam » October 12th, 2020, 9:32 am

Hi Lootman,

On the subject of ERI my accountant advises exactly the opposite and says it’s an easy investigation flag for HMRC. I don’t see how it would balance out over time. Since the introduction of ETFs I’d have a small but significant sum unreported. Perhaps I (and my accountant) are a bit precious about getting these things right - it’s not difficult but just something to beware.

Best wishes,

Steve

Lootman
The full Lemon
Posts: 18681
Joined: November 4th, 2016, 3:58 pm
Has thanked: 628 times
Been thanked: 6564 times

Re: Same Tracker --- What's the difference

#347041

Postby Lootman » October 12th, 2020, 9:47 am

Steveam wrote:Hi Lootman,

On the subject of ERI my accountant advises exactly the opposite and says it’s an easy investigation flag for HMRC. I don’t see how it would balance out over time. Since the introduction of ETFs I’d have a small but significant sum unreported. Perhaps I (and my accountant) are a bit precious about getting these things right - it’s not difficult but just something to beware.

I have always found accountants to be a bit like lawyers. Ask nine of them and you get ten different opinions!

That said it may depend on which ETFs you hold and in what quantities. The amounts I have seen for ERI are very low, with a few notable exceptions. If you do not hold one of those exceptions then it is probably a matter of pennies for most people. I don't know how "easy" it would be for HMRC to flag that for anyone who holds an ETF, at least not in an automated way. And the taxman surely looks at the likely amount of any shortfall before deciding whether to launch an investigation.

My comment about it averaging out over a few years was really the observation that you will still pay tax on this unreported income, just in a later tax year i.e. usually the following year when that income is paid out. Or when you sell of course. In the end it will come out the same either way. All that said wouldn't it be nice if ETFs just did this right? The same fund managers manage that easily for open-ended tracker funds.

jackdaww
Lemon Quarter
Posts: 2081
Joined: November 4th, 2016, 11:53 am
Has thanked: 3203 times
Been thanked: 417 times

Re: Same Tracker --- What's the difference

#347042

Postby jackdaww » October 12th, 2020, 9:53 am

JohnW wrote:
artengill wrote:Surely the only reason to choose a particular company is the one with the lowest fees.

Additionally, and in other words: size of the fund (is it shrinking?), liquidity, size and volume of daily sales, number of market makers, past history of fee changes, whether this is the fund owner's core business (or are they cashing in on a new investing trend?), is the fund synthetic, full replication, how much securities lending does the fund do, frequency of dividends or distributions (more or less paperwork or you), does choosing them diversify or concentrate your risk of being with one business? Depending on where you live, is it currency hedged?


==============================

also i have read somewhere that ISHARES lend your stocks out to short sellers.

i dont know if thats correct or whether it matters .

:?:

scrumpyjack
Lemon Quarter
Posts: 4816
Joined: November 4th, 2016, 10:15 am
Has thanked: 606 times
Been thanked: 2675 times

Re: Same Tracker --- What's the difference

#347054

Postby scrumpyjack » October 12th, 2020, 10:34 am

jackdaww wrote:
JohnW wrote:
artengill wrote:Surely the only reason to choose a particular company is the one with the lowest fees.

Additionally, and in other words: size of the fund (is it shrinking?), liquidity, size and volume of daily sales, number of market makers, past history of fee changes, whether this is the fund owner's core business (or are they cashing in on a new investing trend?), is the fund synthetic, full replication, how much securities lending does the fund do, frequency of dividends or distributions (more or less paperwork or you), does choosing them diversify or concentrate your risk of being with one business? Depending on where you live, is it currency hedged?


==============================

also i have read somewhere that ISHARES lend your stocks out to short sellers.

i dont know if thats correct or whether it matters .

:?:


I think they all do but only with copper bottomed security and a share of the lending fees go to the ETF so reducing costs. Not a problem IMO


Return to “Passive Investing”

Who is online

Users browsing this forum: No registered users and 9 guests