Index Funds, 2 from 4?

[NegevSouth]

In order to maximise this year's ISA contributions, I am able to invest, for a period of approx 10 years, £30k. It will mean £15k each into mine and my wife's. We already have a fair chunk of 60:40 Muli-asset funds.

I would now like to use just one index fund each for both of us and have narrowed our choices down to:-

1) Vanguard FTSE Developed World excl UK
2) Vanguard FTSE Global All Cap
3) Fidelity Index World P
4) L & G Global 100 Index Trust I

To reduce overlapping as much as possible, I'm unsure which 2 of the above 4 would be best. Any suggestions?

[AleisterCrowley]

Well the first two are doing different things - not sure about 3 and 4
The biggest factor over many years , if they are all broadly 'world trackers' , is probably going to be TER eating away at your gains
[edit- I use VWRL, but there are marginally cheaper ways to cover the same markets using 2 (?) Vanguard funds)

[TedSwippet]

I would now like to use just one index fund each for both of us ...

Why do you want to do this? What is wrong with both of you holding the same fund in separate ISA accounts?

Also, what logic did you use to whittle things down to this list? Option 1 excludes UK stocks, which seems a trifle ... odd, for a UK investor. And option 4 is concentrated in just 100 companies, so it would seem to lack diversification. It also carries more than four times the OCF of option 3.

[NegevSouth]

I would now like to use just one index fund each for both of us ...

Why do you want to do this? What is wrong with both of you holding the same fund in separate ISA accounts?

Also, what logic did you use to whittle things down to this list? Option 1 excludes UK stocks, which seems a trifle ... odd, for a UK investor. And option 4 is concentrated in just 100 companies, so it would seem to lack diversification. It also carries more than four times the OCF of option 3.

Yes, we could both hold the same fund. Just thought I'd spread the £30k across two.
Going off research and what others have recommended. We're already invested quite a bit with Vanguard Lifestrategy, which has approx 25% in UK, so option 1 will reduce the overall exposure slightly.
If option 4 is only concentrated in 100 companies, then that could help me eliminate it. Incidentally it has an OCF of 0.14%, compared to 0.12% for option 3. So 6 quid a year extra on £30k

[TedSwippet]

Yes, we could both hold the same fund. Just thought I'd spread the £30k across two.

I can't see any gain at all from doing that, only unnecessary complexification.

Going off research and what others have recommended. We're already invested quite a bit with Vanguard Lifestrategy, which has approx 25% in UK, so option 1 will reduce the overall exposure slightly.

In which case, option 1 for you both, perhaps to the extent that you do not reduce your UK allocation below market cap; the other options all include some UK stock component. Or, switch existing investments from Lifestrategy into separate component funds that don't have a UK bias, and then invest the new money in those same component funds.

If option 4 is only concentrated in 100 companies, then that could help me eliminate it. Incidentally it has an OCF of 0.14%, compared to 0.12% for option 3. So 6 quid a year extra on £30k

According to HL, this fund is 6.83% UK stocks. That's about market cap weight, so no elimination of UK bias to be had from that. Are you sure you can access class I shares of this fund? But then, class C seems to come in at 0.09%, so even better if that's an option.

Are you entirely clear on your aims here? A lack of clarity will make it hard to settle.

[AleisterCrowley]

https://monevator.com/best-global-tracker-funds/
If you're after a global tracker... This is from January, but may be interesting.
(apologies for using TER in earlier post, I probably meant OCF..)

[GeoffF100]

It is very important to keep your costs as low as you can. They compound up over time. Vanguard recently gave an interesting interview:

viewtopic.php?f=55&t=31589

The interviewees both said that the asset allocation of LifeStrategy was chosen for marketing reasons. They favoured a global equity tracker along with a global bond tracker (hedged into sterling). A popular choice is VWRL and VAGP. VWRL = 0.9*VEVE + 0.1*VFEM, which is much cheaper (OCF about 0.13%) than VWRL. The exact weight for VFEM is the percentage in emerging markets for VWRL, which is published by Vanguard at the end of each month. (The two funds subsequently move apart, but you can plot a comparison using Morningstar.) ETFs are popular here because most brokers do not charge platform fees for holding them. iWeb is cheap, however, owned by Lloyds Bank and does not charge platform fees.

LifeStrategy is an easy option, but it is relatively expensive. Rebalancing between equities and bonds is not a big problem. It can mostly be achieved by directing the investment of new money, dividends and interest payments. If you include other funds, you will have to rebalance yourself anyway.

Vanguard FTSE Global All Cap is good in principle, because it includes smaller companies. The FTSE Global index includes just over a hundred UK stocks. (You can see this by subtracting the number of stocks held by VWRL and Vanguard Developed World ex UK.) It just contains what we would call large cap stocks. Vanguard FTSE Global All Cap is expensive, however. Adding the extra stocks may or may not work out well, but the extra cost is certain (unless Vanguard reduces it).

[Hariseldon58]

Some sensible replies here, of the four options, as Geoff100 the Vanguard Global All Cap is low cost and has the widest range, covering Developed Markets, Emerging markets and Smaller Companies all in one investment.

The Fidelity World Index is developed world only, is based on the MSCI index rather than the FTSE indexes, very similar with some differences of what is considered Developed or Emerging markets.

The link to Monevator offers some good alternatives.

In my passive holdings I hold several different World trackers from different providers, to diversify suppliers because of relatively large holdings, at £30k your on the way but at this stage one investment would suffice. As time goes on these multiple holdings of very similar investments can create unnecessary administration, I would strongly advise going for accumulation units, it really keeps things simple and further lowers costs and ensures income is reinvested as quickly as possible.

[GeoffF100]

Some sensible replies here, of the four options, as Geoff100 the Vanguard Global All Cap is low cost and has the widest range, covering Developed Markets, Emerging markets and Smaller Companies all in one investment.

The Fidelity World Index is developed world only, is based on the MSCI index rather than the FTSE indexes, very similar with some differences of what is considered Developed or Emerging markets.

The link to Monevator offers some good alternatives.

In my passive holdings I hold several different World trackers from different providers, to diversify suppliers because of relatively large holdings, at £30k your on the way but at this stage one investment would suffice. As time goes on these multiple holdings of very similar investments can create unnecessary administration, I would strongly advise going for accumulation units, it really keeps things simple and further lowers costs and ensures income is reinvested as quickly as possible.

Vanguard Global All Cap has an OCF of 0.23%. That is much more than 0.13% for 0.9*VEVE + 0.1*VFEM.

Fidelity World Index is developed world only.

Vanguard Global Small Cap, which tracks the MSCI index has a median market cap of 2.9 BN. VMID (FTSE 250 tracker) has a median market cap of 2.3 BN. The two indices differ on whether South Korea is an emerging market.

I prefer distributing funds. Distributing funds have the advantage that you can choose where to reinvest the dividends or interest payments. This helps for rebalancing. You do not want to have to sell shares to rebalance if you can avoid it. The Vanguard OEICS and unit trusts mostly pay out once a year and the ETFs quarterly.

CGT is a nightmare if you if you buy accumulating funds outside a tax shelter. If you want to bed and ISA, it is best to have the same OEICs inside and outside the ISA, so that you can sell and buy at the same price. I do that with Vanguard Developed World ex UK.

[AleisterCrowley]

Good reminder that I need to sort my trackers out rather than aimlessly plopping cash into VWRL every cheap dealing day...

[GeoffF100]

For balance, I should point out that some ETFs pay their dividends in $. Most platforms will charge commission for converting into £. You avoid that with accumulating funds. Nonetheless, you do not want to pay dealing cost to raise cash if you can avoid it. There are lots of details to consider.

[NegevSouth]

Thanks for the above replies. Much appreciated. Food for thought!
I'd definitely go for accumulation anyway. I still don't mind trying to go with 2 funds rather than just one. Some of you mentioned it's more complex that way and that there'd be more admin. But really it makes no difference. How much more admin could there be? My intention is to leave the money there anyway for approx 10 years (maybe 8, maybe 12).

[kempiejon]

Good reminder that I need to sort my trackers out rather than aimlessly plopping cash into VWRL every cheap dealing day...

There are worse plans to have.
SO and a chum have asked my opinion and as they're both disinterested in the process of investments but think they want to be in the market VWRL looks a good default.

[GeoffF100]

Good reminder that I need to sort my trackers out rather than aimlessly plopping cash into VWRL every cheap dealing day...

There are worse plans to have.
SO and a chum have asked my opinion and as they're both disinterested in the process of investments but think they want to be in the market VWRL looks a good default.

The point is that he can get EXACTLY the same investment, packaged as two funds rather than one, for much less money.

[vagrantbrain]

Good reminder that I need to sort my trackers out rather than aimlessly plopping cash into VWRL every cheap dealing day...

There are worse plans to have.
SO and a chum have asked my opinion and as they're both disinterested in the process of investments but think they want to be in the market VWRL looks a good default.

The point is that he can get EXACTLY the same investment, packaged as two funds rather than one, for much less money.

Would paying 2 sets of dealing fees offset the 0.08% p.a. annual saving though?

[GeoffF100]

There are worse plans to have.
SO and a chum have asked my opinion and as they're both disinterested in the process of investments but think they want to be in the market VWRL looks a good default.

The point is that he can get EXACTLY the same investment, packaged as two funds rather than one, for much less money.

Would paying 2 sets of dealing fees offset the 0.08% p.a. annual saving though?

No chance for a single purchase LTBH of a reasonable sum. If you are buying monthly, you can buy VEVE for nine months, and then buy VFEM on the tenth month; and repeat... You will be a little overweight in the developed markets most of the time, but that probably will not matter. Alternatively, you could use Freetrade where the trades are free.

[hiriskpaul]

HSBC FTSE All World Index C Inc? Covers developed and emerging for 0.13% TER. An accumulating version is available as well.

https://www.markets.iweb-sharedealing.c ... 00BMJJJG09

[Hariseldon58]

The OP needs to invest and whatever route he uses, the cost differences of .08% Pa is pretty much irrelevant on £30k , it would unlikely make any difference on 300K. The small discrepancy in management charge is likely to be overwhelmed by the small tracking errors that are inevitable.

I just looked at Vanguard Global All Cap, Vanguard All World and HSBC All World ( I hold the latter two plus the Fidelity Dev World, Vanguard Dev World, each with a side of the appropriate Emerging Markets Index ETF) on HL on a total return basis.

The results were very close on a cumulative five year basis (the Vanguard All. Cap has insufficient history , ie less than five years)

The difference was .04% after five years, on a discrete year basis the annual variations were up to 1.7%, obviously the leadership went back and fourth each year, some of these differences is down to time of day the valuations are done.

Whilst Vanguard All World = Vanguard Developed World and Vanguard Emerging Markets in a roughly 9:1 ratio, there are 336 more holdings in the combination than the single fund, thats probably a good thing, but there is bound to be a tracking error between the two for that reason alone.

Getting it roughly right is all thats needed. Costs matter but there comes a point where chasing a few basis points can be lost in tracking error.

[NegevSouth]

The OP needs to invest and whatever route he uses, the cost differences of .08% Pa is pretty much irrelevant on £30k , it would unlikely make any difference on 300K. The small discrepancy in management charge is likely to be overwhelmed by the small tracking errors that are inevitable.

I just looked at Vanguard Global All Cap, Vanguard All World and HSBC All World ( I hold the latter two plus the Fidelity Dev World, Vanguard Dev World, each with a side of the appropriate Emerging Markets Index ETF) on HL on a total return basis.

The results were very close on a cumulative five year basis (the Vanguard All. Cap has insufficient history , ie less than five years)

The difference was .04% after five years, on a discrete year basis the annual variations were up to 1.7%, obviously the leadership went back and fourth each year, some of these differences is down to time of day the valuations are done.

Whilst Vanguard All World = Vanguard Developed World and Vanguard Emerging Markets in a roughly 9:1 ratio, there are 336 more holdings in the combination than the single fund, thats probably a good thing, but there is bound to be a tracking error between the two for that reason alone.

Getting it roughly right is all thats needed. Costs matter but there comes a point where chasing a few basis points can be lost in tracking error.

Couldn't agree more. Especially the last line. All the funds that I'd mentioned in my original post plus the others that you yourself have managed are more or less pretty equal in performance. It's not like one is earning on average 3% annually and a similar one 13%.
The difference in costs for a £30k investment annually is about the same as a a couple of takeaways.

[GeoffF100]

The OP needs to invest and whatever route he uses, the cost differences of .08% Pa is pretty much irrelevant on £30k , it would unlikely make any difference on 300K. The small discrepancy in management charge is likely to be overwhelmed by the small tracking errors that are inevitable.

I just looked at Vanguard Global All Cap, Vanguard All World and HSBC All World ( I hold the latter two plus the Fidelity Dev World, Vanguard Dev World, each with a side of the appropriate Emerging Markets Index ETF) on HL on a total return basis.

The results were very close on a cumulative five year basis (the Vanguard All. Cap has insufficient history , ie less than five years)

The difference was .04% after five years, on a discrete year basis the annual variations were up to 1.7%, obviously the leadership went back and fourth each year, some of these differences is down to time of day the valuations are done.

Whilst Vanguard All World = Vanguard Developed World and Vanguard Emerging Markets in a roughly 9:1 ratio, there are 336 more holdings in the combination than the single fund, thats probably a good thing, but there is bound to be a tracking error between the two for that reason alone.

Getting it roughly right is all thats needed. Costs matter but there comes a point where chasing a few basis points can be lost in tracking error.

An extra 0.08% compounded over 20 years amounts to just over 1.6%. Over 40 years it amounts to just over 3.25%. That is not insignificant if you have £1 million+ at the end. A percentage lost to costs at the beginning has exactly the same effect as the same percentage lost to costs at the end.

I checked VWRL = 0.9*VEVE + 0.1*VFEM (using the best fit weight) with a spreadsheet. The country allocations were spot on to the two decimal places that Vanguard gave for the percentages. I do not think that there is any reason to believe that the combination of VEVE and VFEM will under-perform VWRL. I expect that a very narrow race will be won by VWRL if large caps out-perform, and by the combination of two funds if small caps out-perform. We do not know which will do best, but we do know that the combination of two funds is cheaper.

Another more radical viewpoint is to say that we do not know whether the emerging markets will outperform, but we do know that VEVE is cheaper than even the combination of two funds. Just buying VEVE is a reasonable option. Just investing in the large cap stocks in the most reliable markets is fair enough. Nonetheless, theory says trust the market: buy market weights. I am happy to be a bit underweight in emerging markets. I usually just top up VEVE, and occasionally top up VFEM when it gets significantly underweight. I currently have about 90% of market weight in VFEM, and not in a hurry to fix that.