SWDA v VWRP v others

[GeoffF100]

But only Bell can answer for the Vanguard ETFs which say "Legal Status: Oeic". It could be they are saying they take the Vanguard funds as ETFs even though the underlying fund is an OEIC. Or it could be they are saying that because it is an ETF with the same structure as an OEIC, they will trigger their charges as though it were an OEIC.

I never knew there were such things as ETFs that weren't ETFs. How is that even possible?

ETFs are ETFs. There are no ETFs that are not ETFs. I had my SIPP with AJB until March 2021. It held VEVE, which was charged as an ETF. It is shown as an ETF for regular investments (which you can delete after each irregular investment):

https://www.ajbell.co.uk/our-services/q ... nvestments

As I have said, ETFs are OEICs only for institutional investors who are authorised participants, not for you and I. I think I am going to transfer my SIPP back to AJB, but I have not finally made my mind up.

[Arborbridge]

But only Bell can answer for the Vanguard ETFs which say "Legal Status: Oeic". It could be they are saying they take the Vanguard funds as ETFs even though the underlying fund is an OEIC. Or it could be they are saying that because it is an ETF with the same structure as an OEIC, they will trigger their charges as though it were an OEIC.

I never knew there were such things as ETFs that weren't ETFs. How is that even possible?

ETFs are ETFs. There are no ETFs that are not ETFs. I had my SIPP with AJB until March 2021. It held VEVE, which was charged as an ETF. It is shown as an ETF for regular investments (which you can delete after each irregular investment):

https://www.ajbell.co.uk/our-services/q ... nvestments

As I have said, ETFs are OEICs only for institutional investors who are authorised participants, not for you and I. I think I am going to transfer my SIPP back to AJB, but I have not finally made my mind up.

Well, I still need to check with AJB - although what you said about them charging VEVE as an ETF gives some comfort. Both VEVE and PRIW are listed as ETFs but the links below, show the legal structure is different:-
https://www.ajbell.co.uk/market-researc ... /fund-info
https://www.ajbell.co.uk/market-researc ... /fund-info

Thanks for your explanation, but I still believe AJBell have some work to do by confirming the charge structure as their statement does beg the question. It makes a difference because I have been transferring OEICS away from AJB to the more favourable charging of HSDL, whereas I'm up to the max charge per month for shares custody charge in my SIPP.

Arb.

[GeoffF100]

By all means ask AJB how those ETFs will be charged. An email should do it. Nonetheless, I do not believe there is an issue:

"Depending on the country, the legal structure of an ETF can be a corporation, trust, open-end management investment company, or unit investment trust."

https://en.wikipedia.org/wiki/Exchange-traded_fund

We can add SICAV to that list.

[Newroad]

Hi All.

Like some others above, I find the PRIW "ETF" potentially weird (e.g. OEIC-like characteristics). See below from the Simplified Prospectus/KID via the HL site

Here is the document itself

https://www.fundslibrary.co.uk/FundsLibrary.DataRetrieval/Documents.aspx/?type=point_of_sale&id=66a2d603-3732-4221-8179-e93355fa4688&user=h0Uis6NvlFR0h5ZjxUjocB%2fI6i7ZuZKkHGcU89jjJ%2btbk1RtHvib3sR76gxo4yi0&r=1

I don't know what this Sub-Fund stuff is all about, but it's confusing enough to me that I would personally stay away.

Regards, Newroad

[GeoffF100]

The "sub-fund stuff" is usual. There will be versions of the ETF which trade on different markets and/or are denominated in different currencies. Vanguard is the same. Amundi may be less conservative than Vanguard with securities ending, and may take some the profits from that lending (Vanguard does not). More worryingly, perhaps, Amundi seems to be selling call options using the fund assets as collateral. That is profitable unless the market jumps unexpectedly. PRIW is cheaper than VEVE (for now), but I am not tempted to pay the costs to switch away from the market leader.

[Newroad]

Perhaps, Geoff.

But what about the putative 3% entry and exit charges from the image?

They would appear OEIC-like (and it's not clear that if not so, when otherwise they might be applicable).

Regards, Newroad

[Arborbridge]

By all means ask AJB how those ETFs will be charged. An email should do it. Nonetheless, I do not believe there is an issue:

"Depending on the country, the legal structure of an ETF can be a corporation, trust, open-end management investment company, or unit investment trust."

https://en.wikipedia.org/wiki/Exchange-traded_fund

We can add SICAV to that list.

I'm sure you are right, and it's what I would expect too - but now I've started the query I might as well finish "for avoidance of doubt" as they say. I've had enough cases where corporates tell you one thing only to find you missed out a weasel word here and there. Bone in my teeth, and all that.

I will let everyone know what they say.

[Arborbridge]

I don't know what this Sub-Fund stuff is all about, but it's confusing enough to me that I would personally stay away.

Regards, Newroad

The sub funds thing is quite normal - see Geoff's explanation, and that wouldn't worry me.

You might like to scare yourself by checking out things like "counter party risk". This is one feature which put me off ETFs for years especially after the great credit crash in which counter party risks and complex offsetting of this or that here and there, nearly broke the system.
Ultimately, ETFs are complex and not necessarily what your and I would call "real life" - that's why many people would go for ITs which are much easier to understand, even if more expensive.

Arb.

[Newroad]

Hi Arb (and similarly Geoff).

My apology - I wrote unclearly. It's not the sub-fund structure per se I was commenting on, but rather, the putative charges associated with it in this case.

Geoff's highlighting of writing options/securities lending against the underlying holdings, especially if the profits are not fully passed through to the end client, would further heighten my fears.

Regards, Newroad

[GeoffF100]

Perhaps, Geoff.

But what about the putative 3% entry and exit charges from the image?

They would appear OEIC-like (and it's not clear that if not so, when otherwise they might be applicable).

That is for authorised participants who can buy and sell baskets of the underlying securities (not units in the fund). With Vanguard ETFs, they pay a dilution levy which goes into the fund.

[Newroad]

Thanks for the further reply, Geoff.

I understand what an Authorised Participant is (and what they do) but it remains unclear when and how the respective 3% charges might apply.

If you don't mind, I'd be grateful if you could explain

1. When, how and to whom the 3% charges might apply, and
2. If they're material to retail punters like myself purchasing/selling the ETF on an exchange?

Re (2) above, I mean does it have any effect on performance, not whether the charge is directly applied to retail punters.

Regards, Newroad

[Hariseldon58]

Hi All.

Like some others above, I find the PRIW "ETF" potentially weird (e.g. OEIC-like characteristics). See below from the Simplified Prospectus/KID via the HL site

Here is the document itself

https://www.fundslibrary.co.uk/FundsLibrary.DataRetrieval/Documents.aspx/?type=point_of_sale&id=66a2d603-3732-4221-8179-e93355fa4688&user=h0Uis6NvlFR0h5ZjxUjocB%2fI6i7ZuZKkHGcU89jjJ%2btbk1RtHvib3sR76gxo4yi0&r=1

I don't know what this Sub-Fund stuff is all about, but it's confusing enough to me that I would personally stay away.

Regards, Newroad

There are no 3% charges to pay.... just compare these developed world ETFs over a few years on a total return basis and you find they all give very similar performance.

All ETFs are sub-funds of a master fund.

A lot of ETfs may appear small but are not, if a management organisation run a hedged. or a particular currency or an index listed on a particular exchange they may well run a sub fund. If Vanguard run an S&P500 ETF they actually multiple versions but there is only one master fund that they have to replicate tot the index, the rest are derivations.


edited to remove typo

[GeoffF100]

Thanks for the further reply, Geoff.

I understand what an Authorised Participant is (and what they do) but it remains unclear when and how the respective 3% charges might apply.

If you don't mind, I'd be grateful if you could explain

1. When, how and to whom the 3% charges might apply, and
2. If they're material to retail punters like myself purchasing/selling the ETF on an exchange?

Re (2) above, I mean does it have any effect on performance, not whether the charge is directly applied to retail punters.

Regards, Newroad

1. The a 3% charge has to be paid when an authorised participant buys a basket of securities from the fund or sells a basket of securities to them. The charge is 2% for VEVE, see the prospectus: https://fund-docs.vanguard.com/etf-prospectus-en.pdf
2. Yes, it could affect performance. Amundi might pocket some of that charge. The larger charge might increase the tracking error. For VEVE, Vanguard says "It is anticipated that, under normal market circumstances, the annualised ex-post Tracking Error of the Fund, will be up to 0.20%." See also: https://corporatefinanceinstitute.com/r ... ing-error/. The higher charge for the Amundi fund might increase the discount/premium to NAV. On the other hand, there may be a performance drag if insufficient money is collected and returned to the fund.

[Newroad]

Thanks, Geoff.

Much appreciated! Further, I assume that I have read it correctly in that it's the (sub-)fund paying the 3% to the Authorised Participant (AP) - not the other way around?

This is quite worrying for me, however, as 3% (or even 2% for that matter) seems an extraordinarily high margin/fee, especially for something as liquid as global developed market equities! Also, it goes against what I have previously understood, i.e. that AP's make their money predominantly from arbitrage, e.g. here

https://www.investopedia.com/terms/a/authorizedparticipant.asp#:~:text=Authorized%20participants%20receive%20the%20same,the%20ETF%20market%20through%20arbitrage.

"Authorized participants receive the same value of the underlying security in the fund after selling shares. Authorized participants make most of their profits in the ETF market through arbitrage."

and here

https://www.ft.com/content/b464f041-4025-4f68-8d5d-b1e865367372

"Authorised participants are traditionally the large investment banks such as Morgan Stanley, Goldman Sachs and Bank of America. Although they have no legal obligation to operate in the primary market, it is advantageous for them to do so because they can make money through arbitrage."

Once again, my apology if I'm missing something obvious.

Regards, Newroad

[GeoffF100]

Reading it more closely, the fee is a maximum of 2%. It is paid by the AP to Vanguard. I expect that the actual fee will be much less. VEVE does appear to be an OEIC as far as the APs are concerned. Vanguard buys and sells the shares and pays the custody charges. The fee is sufficient to cover these charges, so that the long term holders are not disadvantaged. Bloomberg reports VEVE's the average 52 week premium to NAV to be 0.04%.

[Arborbridge]

By all means ask AJB how those ETFs will be charged. An email should do it. Nonetheless, I do not believe there is an issue:

"Depending on the country, the legal structure of an ETF can be a corporation, trust, open-end management investment company, or unit investment trust."

https://en.wikipedia.org/wiki/Exchange-traded_fund

We can add SICAV to that list.

I'm sure you are right, and it's what I would expect too - but now I've started the query I might as well finish "for avoidance of doubt" as they say. I've had enough cases where corporates tell you one thing only to find you missed out a weasel word here and there. Bone in my teeth, and all that.

I will let everyone know what they say.

And this is the reply from A J Bell:-

I can confirm that the 4 securities you have mentioned are in fact ETFs and will be charged as such within your SIPP, which would be a
maximum of 10.00 GBP per month.

The four were all Vanguard ETFs. In the detailed note page they were described as having the legal structure of "OEIC". So, good result and good to have confirmation.