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TIP5

Stocks and Shares ISA , Choosing funds for ISA's, risk factors for funds etc
Investment strategy discussions not dealt with elsewhere.
CliffEdge
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TIP5

#434916

Postby CliffEdge » August 15th, 2021, 2:35 pm

I have been trying to find out the difference between two iShares ETF

TP05

TIP5

Does anyone have any info?

monabri
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Re: TIP5

#434922

Postby monabri » August 15th, 2021, 2:50 pm

Other than one is priced in dollars and the other in Sterling.

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Re: TIP5

#434961

Postby mc2fool » August 15th, 2021, 7:19 pm

monabri has it, there's no difference other than TP05 being the GBP class and TIP5 being priced in USD.

The iShares site is usually a good source for info about iShares ETFs. :D
https://www.ishares.com/uk/individual/en/products/287202/ishares-tips-0-5-ucits-etf and scroll down to "Listings"

CliffEdge
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Re: TIP5

#434963

Postby CliffEdge » August 15th, 2021, 7:31 pm

mc2fool wrote:monabri has it, there's no difference other than TP05 being the GBP class and TIP5 being priced in USD.

The iShares site is usually a good source for info about iShares ETFs. :D
https://www.ishares.com/uk/individual/en/products/287202/ishares-tips-0-5-ucits-etf and scroll down to "Listings"

Thank you. I'm still confused, as their performance over the last five years seems totally different.

mc2fool
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Re: TIP5

#434967

Postby mc2fool » August 15th, 2021, 7:51 pm

CliffEdge wrote:
mc2fool wrote:monabri has it, there's no difference other than TP05 being the GBP class and TIP5 being priced in USD.

The iShares site is usually a good source for info about iShares ETFs. :D
https://www.ishares.com/uk/individual/en/products/287202/ishares-tips-0-5-ucits-etf and scroll down to "Listings"

Thank you. I'm still confused, as their performance over the last five years seems totally different.

They're only a bit over four years old (20/Apr/2017), but, yes indeed:

Image

I think this explains it: :D

Image

It helps to compare returns in the same currency. ;)

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Re: TIP5

#434980

Postby mc2fool » August 15th, 2021, 9:18 pm


CliffEdge
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Re: TIP5

#434982

Postby CliffEdge » August 15th, 2021, 9:21 pm

Thank you that's really helpful. I think I want the tip5, probably...

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Re: TIP5

#434989

Postby CliffEdge » August 15th, 2021, 10:05 pm

I'm still puzzled. It seems like the tp05 returns are affected by the pond dollar exchange rate?

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Re: TIP5

#434994

Postby monabri » August 15th, 2021, 10:42 pm

CliffEdge wrote:I'm still puzzled. It seems like the tp05 returns are affected by the pond dollar exchange rate?


Yes, and that's the outcome of the bonds being in USD and the zig zag exchange rate between £ and $.

Note, the value of TP05 ( sterling) increases , as the second graph shows, when the value of the dollar dips relative to Sterling ( and vice versa).

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Re: TIP5

#435005

Postby mc2fool » August 15th, 2021, 11:45 pm

CliffEdge wrote:I'm still puzzled. It seems like the tp05 returns are affected by the pond dollar exchange rate?

Uh? Yes, of course, as TIPS are US$ investments and so, for the sterling based investor, the returns from both TP05 and TIP5 are affected by the GBP:USD rate, and equally so!

Look, TIP5 launched in 2017 at $5 per share. The GBP:USD exchange rate at the time was 1.29, so to buy a share would have cost £3.88.
Today it is at $5.18 and the exchange rate is 1.39, so if you sold you'd get £3.73 -- a loss of 15p per share.

OTOH, TP05 launched in 2017 at ... £3.88 per share and today is ... £3.73 -- so a loss of 15p per share. How about that?! :D

Actually, if you are a sterling based investor then TIP5 will be a bit worse than that, as your broker is going to charge you 1-1.5% exchange commission each way, whereas the pricing of TIP5:TP05 will be at much more favourable rates.

So, unless you actually have US$ in a US$ account with your broker, you're slightly better off getting the GBP class, TP05.

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Re: TIP5

#435274

Postby AWOL » August 17th, 2021, 8:24 am

CliffEdge wrote:I have been trying to find out the difference between two iShares ETF

TP05

TIP5

Does anyone have any info?


I have just one thing to add to the excellent currency discussion. As currency volatility is far greater than bond price volatility it makes sense to currency hedge foreign bonds (as opposed to just denominating in GBP to avoid brokerage FX fees). There is a cost to hedging but the consensus is that it usually makes sense to hedge bond currency but not equity currency. Try comparing ITPG with TP05. Unless you have good reason to believe that FX will favour a long USD position I'd be inclined to hedge.

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Re: TIP5

#435289

Postby CliffEdge » August 17th, 2021, 9:07 am

AWOL wrote:
CliffEdge wrote:I have been trying to find out the difference between two iShares ETF

TP05

TIP5

Does anyone have any info?


I have just one thing to add to the excellent currency discussion. As currency volatility is far greater than bond price volatility it makes sense to currency hedge foreign bonds (as opposed to just denominating in GBP to avoid brokerage FX fees). There is a cost to hedging but the consensus is that it usually makes sense to hedge bond currency but not equity currency. Try comparing ITPG with TP05. Unless you have good reason to believe that FX will favour a long USD position I'd be inclined to hedge.

The pound has lost value against the dollar in the past. So do you think is it best to hedge or not hedge over the next ten years or so? Bearing in mind that the UK will soon have to deal with the consequences of Brexit. Indeed already is beginning to have serious problems with inflation, national debt, the collapse of London as a major wealth contributor, and shortages of all kinds, including labour, food, goods etc. Caused by Brexit.

dealtn
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Re: TIP5

#435294

Postby dealtn » August 17th, 2021, 9:20 am

CliffEdge wrote:Bearing in mind that the UK will soon have to deal with the consequences of Brexit. Indeed already is beginning to have serious problems with inflation, national debt, the collapse of London as a major wealth contributor, and shortages of all kinds, including labour, food, goods etc. Caused by Brexit.

Good to see a balanced impartial analysis on an Investment Strategies thread!

AWOL
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Re: TIP5

#435333

Postby AWOL » August 17th, 2021, 11:50 am

CliffEdge wrote:
AWOL wrote:
CliffEdge wrote:I have been trying to find out the difference between two iShares ETF

TP05

TIP5

Does anyone have any info?


I have just one thing to add to the excellent currency discussion. As currency volatility is far greater than bond price volatility it makes sense to currency hedge foreign bonds (as opposed to just denominating in GBP to avoid brokerage FX fees). There is a cost to hedging but the consensus is that it usually makes sense to hedge bond currency but not equity currency. Try comparing ITPG with TP05. Unless you have good reason to believe that FX will favour a long USD position I'd be inclined to hedge.

The pound has lost value against the dollar in the past. So do you think is it best to hedge or not hedge over the next ten years or so? Bearing in mind that the UK will soon have to deal with the consequences of Brexit. Indeed already is beginning to have serious problems with inflation, national debt, the collapse of London as a major wealth contributor, and shortages of all kinds, including labour, food, goods etc. Caused by Brexit.


If you are likely to have mainly GBP denominated liabilities then there remains an argument for currency hedging especially if the point of your bond allocation is to act as ballast. Foreign exchange movements are notoriously difficult to predict. Currency movements are very noisy, much more so that bond rates and especially so in a low rate environment.

For all that BREXIT introduced more barriers to trade than it has removed or seams likely to remove I wouldn't let it cast too big a shadow over your investment strategy. There are things beyond BREXIT happening in the world. I wouldn't assume that the USD will necessarily always be the reserve currency (although I expect it will be for some time to come), or that the US stock and bond markets will always be the biggest in the world.

The UK once was in the position that USA is now in. At other times China was the worlds economic powerhouse. The Mongols, Romans, Carthaginians, Athenians, Turks... the major powers of the day can become forgotten foot notes. Yesterdays glory has no currency today.

Ultimately if you feel a strong conviction that you can see the future of the GBP and "know" that BREXIT will dominate all other forces then you'll be prepared to bet on that. Personally my powers of prediction are pitiful so I work on known facts like historic currency volatility can dwarf bond returns and I use bonds as ballast. Over the last 100 years the GBP has declined against the USD but it's been a bumpy ride. Elroy Dimson, London Business School said “If you look at the real (inflation adjusted) exchange rate of the pound against the dollar, it has weakened over the past 116 years by a minuscule 0.22pc per year."

After all, it's not impossible that the US public could elect an economic vandal on the promise of greatness that never arrives. Your proposed bet is on our idiocy being greater than theirs. You may be right.

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Re: TIP5

#435337

Postby Spet0789 » August 17th, 2021, 11:56 am

dealtn wrote:
CliffEdge wrote:Bearing in mind that the UK will soon have to deal with the consequences of Brexit. Indeed already is beginning to have serious problems with inflation, national debt, the collapse of London as a major wealth contributor, and shortages of all kinds, including labour, food, goods etc. Caused by Brexit.

Good to see a balanced impartial analysis on an Investment Strategies thread!


Feel free to set out an opposing view.

Personally, i expect the multi-decade depreciation of sterling against other major currencies (USD, AUD, DEM/EUR) will continue. Significantly worsening the terms on which we trade with the outside world is hardly going to reverse that trend. Is anyone going to argue otherwise?

Also, having any haven asset in USD is usually a smart move as the USD tends to outperform in stresses.

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Re: TIP5

#435340

Postby AWOL » August 17th, 2021, 12:05 pm

Spet0789 wrote:
dealtn wrote:
CliffEdge wrote:Bearing in mind that the UK will soon have to deal with the consequences of Brexit. Indeed already is beginning to have serious problems with inflation, national debt, the collapse of London as a major wealth contributor, and shortages of all kinds, including labour, food, goods etc. Caused by Brexit.

Good to see a balanced impartial analysis on an Investment Strategies thread!


Feel free to set out an opposing view.

Personally, i expect the multi-decade depreciation of sterling against other major currencies (USD, AUD, DEM/EUR) will continue. Significantly worsening the terms on which we trade with the outside world is hardly going to reverse that trend. Is anyone going to argue otherwise?

Also, having any haven asset in USD is usually a smart move as the USD tends to outperform in stresses.


However if one has anything close to a market cap weighting to USA Equities then one already has significant USD exposure. Ultimately it's a choice as to whether the asset or the currency is driving returns. If the purpose is USD exposure then it is one way to get it.

Image

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Re: TIP5

#435347

Postby Spet0789 » August 17th, 2021, 12:21 pm

AWOL wrote:
Spet0789 wrote:
dealtn wrote:Good to see a balanced impartial analysis on an Investment Strategies thread!


Feel free to set out an opposing view.

Personally, i expect the multi-decade depreciation of sterling against other major currencies (USD, AUD, DEM/EUR) will continue. Significantly worsening the terms on which we trade with the outside world is hardly going to reverse that trend. Is anyone going to argue otherwise?

Also, having any haven asset in USD is usually a smart move as the USD tends to outperform in stresses.


However if one has anything close to a market cap weighting to USA Equities then one already has significant USD exposure. Ultimately it's a choice as to whether the asset or the currency is driving returns. If the purpose is USD exposure then it is one way to get it.


A common fallacy (or at best, over-simplification.) Entirely depends on where those US-listed companies earn revenues and incur costs. Taking an obvious example, Nestle shares trade in CHF yet Nestle does 98% of its business elsewhere. If you own Nestle shares, you don’t have CHF exposure.

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Re: TIP5

#435361

Postby AWOL » August 17th, 2021, 1:00 pm

Simplification but not oversimplification. It's about 29% of S&P 500 earnings that come from overseas. You are still left with plenty of dollar exposure. The US domestic market is enormous.

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Re: TIP5

#435363

Postby Spet0789 » August 17th, 2021, 1:08 pm

AWOL wrote:Simplification but not oversimplification. It's about 29% of S&P 500 earnings that come from overseas. You are still left with plenty of dollar exposure. The US domestic market is enormous.


A lower proportion of fixed costs is incurred overseas so I would expect that the proportion of profits earned overseas is higher still. But certainly S&P500 has a decent amount of USD exposure. If an investor owns specific US stocks, he or she needs to look under the hood (so to speak) before deciding whether they have USD exposure.

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Re: TIP5

#435371

Postby CliffEdge » August 17th, 2021, 1:31 pm

Yes I was going to ask why currency exchange rate variation doesn't affect lifestrategy 100 for example, which I have invested in. It seems to have gone up a bit recently but has significant allocation to US shares. So there must be significant exposure to dollars in there, which I therefore already have?

I may be pessimistic but I just don't see what's so wonderful about Britain in the eyes of the rest of the world? Speaking personally I think it's a wonderful place but how long can it stay that way now we're out on our own. Course it may be the making of us.

I read somewhere that the whole UK stock market is worth less than Tesla. That makes the US a force to be reckoned with and probably best to be in.

Reading the excellent replies here, it seems that buying TP05 is effectively exchanging pounds for dollars.

Goodness me this investment park is complicated.


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