The Lemon Fool

Hi all, I have a lifetime of investing in individual shares, but have been asked by a family member about the cheapest fund to track the world index. (yes, I know it's not a good idea to get involved in other peoples finances) Having never looked at any type of fund thought it would be easy, how wrong I was. individual shares I do understand, also the difference between unit trusts and investment trusts but the whole range of products for sale appears to be intentionally bewildering. could anyone point me in the right direction please?

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

HSBC Index Tracker Investment Funds - FTSE All-World Index

The Fund aims to provide growth over the long term, which is a period of 5 years or more, by tracking the performance of the FTSE All-World Index (the “Index”)

ISIN : GB00BMJJJF91

Charge 0.13%

( Vanguard's VWRL (" distributing") and VWRP ( "accumulation") each charge 0.22%.)

thanks for that monabri that was really quick

A couple of points to add that you might not have considered.

Funds (OEICS) may attract an additional platform charge, so the final charge on the HSBC one that monabri suggested may be higher, depending on the platform used. The Vanguard ones he mentions are ETFs, which generally speaking won't.

Also it's worth checking exactly what "world" or "global" covers.
E.g. FTSE Global includes small cap; FTSE World doesn't.
MSCI World only includes 23 developed countries; MSCI ACWI covers 23 developed and 27 emerging. But neither includes small caps.

torata

this was updated last year so should be reasonably up to date: https://monevator.com/low-cost-index-trackers/

Thanks for all the replies. The link jonesa1 gave looks a good one, although I am a bit confused as to my morning star is telling me why HSBC FTSE All Share Index Fund Institutional the cheapest UK ftse all share tracker isn't ISAable. Yes, I didn't say this was for an ISA or that I was looking for a list of alternatives to a world index tracker which I could present then the final decision wasn't mine, sorry about that initial lack of detail.

I suspect the OCF is as a good as guide as any, but really matters is the tracking error (IMHO). The OCF omits some costs, and potentially some gains - e.g. fund managers lending shares to short sellers. The real 'cost' is by how much the fund lags the benchmark. I have looked briefly, but cannot find any data comparisons on this.

G37y wrote:Thanks for all the replies. The link jonesa1 gave looks a good one, although I am a bit confused as to my morning star is telling me why HSBC FTSE All Share Index Fund Institutional the cheapest UK ftse all share tracker isn't ISAable. Yes, I didn't say this was for an ISA or that I was looking for a list of alternatives to a world index tracker which I could present then the final decision wasn't mine, sorry about that initial lack of detail.

Institutional Class Funds are intended for large purchases (multi millions) from institutions. Currently, for more modest investors, it looks like the Class C is the lowest cost most commonly available Class of the HSBC FTSE All Share Fund (OCF = 0.06%).

VWRL = 0.9 * VEVE + 0.1 * VFEM which is cheaper, about 0.13% OCF. You can determine the exact weight of VFEM from the percentage in the US for VWRL and VEVE.

There are other costs involved, such as dividend withholding taxes that vary around the world. US for instance levies 30%, reduced to 15% under UK/US tax treaty (and same in Ireland where many ETF's are domiciled). Broad average is perhaps 20%, so assuming a broad average 3% dividend = 0.6%. Add on fund fees and brokerage fees and maybe 0.75%/year. £1M portfolio, £7500/year.

Historically the UK has been a global hub, centre for many smaller nations for expertise in accounting, law, finance. Over 70% of the FT100 earnings are sourced from foreign/global. Combine that with US stocks and the two can be similar to 'world'. Take the risk of a conglomerate instead of a fund and Berkshire Hathaway pays no dividends so no US withholding taxes, no fees either, so combined 50/50 with a FT100 tracker and maybe 0.03%, potentially with no further dividend withholding taxes etc., just brokerage fees. Maybe £1M, £400/year. £7K/year saving.

G37y wrote:Hi all, I have a lifetime of investing in individual shares, but have been asked by a family member about the cheapest fund to track the world index. (yes, I know it's not a good idea to get involved in other peoples finances) Having never looked at any type of fund thought it would be easy, how wrong I was. individual shares I do understand, also the difference between unit trusts and investment trusts but the whole range of products for sale appears to be intentionally bewildering. could anyone point me in the right direction please?

Moderator Message:
Now moved to the Passive Investing board, where index trackers are discussed. You may get more replies. --MDW1954

I'd put my fiver on Fidelity Index World Fund P Accumulation 0.12%

- https://www.morningstar.co.uk/uk/funds/ ... F00000SRPN

Worth noting it uses the MCSI World index not the FTSE equivalent, which mainly means no S. Korea if I recall correctly.

BobbyD wrote:I'd put my fiver on Fidelity Index World Fund P Accumulation 0.12%

- https://www.morningstar.co.uk/uk/funds/ ... F00000SRPN

Worth noting it uses the MCSI World index not the FTSE equivalent, which mainly means no S. Korea if I recall correctly.

It does not include the emerging markets. The MSCI world index contains much less stocks than the the FTSE world index. The Vanguard funds look a better buy to me.

Do a performance chart of them and you will find that based on past performance SWDA is hard to beat. Of course, if EM take off or DM collapse that would change. I am quite comfortable with backing the developed world.

AWOL wrote:Do a performance chart of them and you will find that based on past performance SWDA is hard to beat. Of course, if EM take off or DM collapse that would change. I am quite comfortable with backing the developed world.

It makes sense to invest solely in the DM if you know that it will do better than the global market as a whole. Do you know more than the combined wisdom of the market?

GeoffF100 wrote:

AWOL wrote:Do a performance chart of them and you will find that based on past performance SWDA is hard to beat. Of course, if EM take off or DM collapse that would change. I am quite comfortable with backing the developed world.

It makes sense to invest solely in the DM if you know that it will do better than the global market as a whole. Do you know more than the combined wisdom of the market?

One will do better than the other, that much is certain, but I'm unsure what the latter sentence about the 'combined wisdom of the market' really means?

RC

ReformedCharacter wrote:One will do better than the other, that much is certain, but I'm unsure what the latter sentence about the 'combined wisdom of the market' really means?

RC

I believe it is to suggest that I may be less smart than the weighted average of market participants. Which would only be known at the end of the investment horizon although even then it could just be luck of course.

I did try to call out the risk that I have no knowledge of the future movements of markets when I said...

AWOL wrote: Of course, if EM take off or DM collapse that would change.

Of course one problem with the "combined wisdom of the market" is that not all equity is listed.

GeoffF100 wrote:It makes sense to invest solely in the DM if you know that it will do better than the global market as a whole.

It also makes sense not to invest where one is uncomfortable with the risks and I am not comfortable having a market weighted allocation to markets where there is a large chance of state intervention and appropriation of assets. Chinese and Russian governments have both appropriated share holder capital in the past and have both demonstrated a willingness to intervene in ways that give many (but not all) pause for thought.

I have no idea what the original posters attitude to Emerging Market investing is but as investors we all make choices with consequences even if the choice is not to choose.

You could argue that the OP said "World" but then "World" is used as Developed World and All Country World in investing and Indices differ in their definition of the world.

AWOL wrote:

GeoffF100 wrote:It makes sense to invest solely in the DM if you know that it will do better than the global market as a whole.

It also makes sense not to invest where one is uncomfortable with the risks and I am not comfortable having a market weighted allocation to markets where there is a large chance of state intervention and appropriation of assets. Chinese and Russian governments have both appropriated share holder capital in the past and have both demonstrated a willingness to intervene in ways that give many (but not all) pause for thought.

VWRL has a zero allocation to Russia, and 4.7% allocation to China. Chinese shares are priced more cheaply than others to reflect the greater risk. Has the market got the relative pricing wrong? What superior knowledge do you have to make that judgement?

GeoffF100 wrote:VWRL has a zero allocation to Russia, and 4.7% allocation to China. Chinese shares are priced more cheaply than others to reflect the greater risk. Has the market got the relative pricing wrong? What superior knowledge do you have to make that judgement?

I understand my risk appetite. I dodged the financial crisis, the ruble crisis, and the dot.com crash all through choosing to miss out on the chance of more.

We all make judgements. Only a fool invests where he hasn't the stomach to hold the asset and it is doubly foolish to invest knowing that one will sell on trouble. Most passive investors don't hold a market cap weighting of bonds.

I think your line of questioning is suggesting there is something wrong with my approach. Not for me and the principle of choice works for others. Do what you are comfortable with doing.... Evolve according to how your life circumstances change. It is sensible for a twenty year old's portfolio to look unlike a drawdown portfolio where volatility hurts returns.

What is behind your line of questioning? My guess is that you believe in the Efficient Market Hypothesis although that can easily be shown to be false. For example by the success of momentum strategies, the existence of arbitrage opportunities, etc.

AWOL wrote:

GeoffF100 wrote:VWRL has a zero allocation to Russia, and 4.7% allocation to China. Chinese shares are priced more cheaply than others to reflect the greater risk. Has the market got the relative pricing wrong? What superior knowledge do you have to make that judgement?

I understand my risk appetite. I dodged the financial crisis, the ruble crisis, and the dot.com crash all through choosing to miss out on the chance of more.

We all make judgements. Only a fool invests where he hasn't the stomach to hold the asset and it is doubly foolish to invest knowing that one will sell on trouble. Most passive investors don't hold a market cap weighting of bonds.

I think your line of questioning is suggesting there is something wrong with my approach. Not for me and the principle of choice works for others. Do what you are comfortable with doing.... Evolve according to how your life circumstances change. It is sensible for a twenty year old's portfolio to look unlike a drawdown portfolio where volatility hurts returns.

What is behind your line of questioning? My guess is that you believe in the Efficient Market Hypothesis although that can easily be shown to be false. For example by the success of momentum strategies, the existence of arbitrage opportunities, etc.

This is the passive investing board. If you want less risk, you can hold more bonds. The market thinks that the risk adjusted return from DM and EM will be the same. Nobody knows what the actual returns will be. The passive investing approach is to spread your equity risk as wide as you reasonably can. Passive investors do not sell on trouble. They just ride it out - or buy more to rebalance. You can find out more here:

https://monevator.com/tag/kroijer/