The Lemon Fool

I've been doing a bit of reading about "factor" investing recently. I fully realise these are more risky than a simple tracker type index fund, and intend to devote only a modest % of my funds to this.

The other thing is that I have quite a lot of money in GIAs now, so growth funds seem quite attractive (despite the fast-disappearing CGT tax allowance), compared to income funds, given that I'm in the 40% tax bracket.

But I'm having difficulty finding UK index funds/ETFs in this category. A typical example might be Vanguard VUG (https://www.morningstar.com/etfs/arcx/vug/quote)... this appears to be for sale in the US but not in the UK.

So:
1) are there any comparable index funds for sale in the UK (which are not artificially weighted towards the UK - instead, either US-based or global)?
2) are there any pitfalls to me actually buying the US ETF VUG itself? I'm not entirely clear that I am able to buy VUG, but I don't see why this wouldn't be possible: I just checked on x-o.co.uk and it seems to be available to buy, "VUG.US". When I say pitfalls, I mean above all tax-related. I'm not concerned about exchange rate risk...

There is the Amundi Russell 1000 Growth ETF, denominated in pounds (symbol RSGL), which tracks the Russell 1000 Growth index - the largest 1000 US companies, screened for growth characteristics: https://research.ftserussell.com/Analyt ... anual=True , which had 443 constituents at the end of 2023. Available on Hargreaves Lansdown and ii (that and one for small cap growth were all that came up with a simple "growth etf" search on ii), and so quite likely other platforms too.

EthicsGradient wrote:Amundi Russell 1000 Growth ETF

Thanks, looks like the right sort of thing.
OGC 0.3% perhaps slightly on the high side for an index fund.
By comparison VUG appears to be a refreshing 0.04% (sometimes OGCs seem to be lower in the US than the UK, which is quite annoying).

But yes, good performance over the past year, in accordance with the underlying index.

I just rang x-o. In fact they can't sell me that Vanguard US ETF as it's not covered by CREST. Hmmm.

I don't think there is in the way that you would expect (e.g the fund recommended above is artificially replicated via swaps), and to my knowledge there isn't anything like ARK ETFs here that focus on growth as a factor. Legal and General have thematic funds (battery technology, robotics, biotech, genomics etc) which naturally will be somewhat growth oriented.

My 2nd largest holding is L&G global tech index (class c) which has served me phenomenally over the years.

elephanthunt11 wrote:the fund recommended above is artificially replicated via swaps

Thanks for telling me this. I'm very unkeen on those clever "synthetic" index things (remember reading about them some time ago, can't remember the details but didn't like the look of them).

My 2nd largest holding is L&G global tech index (class c) which has served me phenomenally over the years.

Well done, quite a stonker. Usual suspects: AAPL and MSFT alone account for 34%!

mrodent wrote: Thanks for telling me this. I'm very unkeen on those clever "synthetic" index things (remember reading about them some time ago, can't remember the details but didn't like the look of them).

Well done, quite a stonker. Usual suspects: AAPL and MSFT alone account for 34%!

I too have a similar aversion to “synthetically replicated” ETFs. Sounds way too Big Short for me, and I don’t have the spare time to learn and understand what it actually is I’m investing in (I could explain swaps to a layman and make it sound like I know what I’m talking about, but I haven’t convinced myself).

And yeah - if you’re looking for growth factor, I really think low cost tech index funds are probably the way to go. Charges of 20 basis points or less, 50% of any tech index will be semiconductor manufacturers/designers, and I think of semiconductors as a proxy for growth and the ‘pick and shovel’ facilitating the growth of the tech sector.

mrodent wrote:I just rang x-o. In fact they can't sell me that Vanguard US ETF as it's not covered by CREST. Hmmm.

To get around the weird behind-the-green-curtain that CREST is, you could look into having a broker account in the US. Fill in W8-BEN to assert you are a non-resident alien. Pay the 15% withholding tax in the US. Reclaim it in self-assessment as a Foreign Tax Credit under the auspices of the Double Taxation Treaty that exists betwixt the US and the UK. Alas this account will be unwrapped for UK.

International wrote:

mrodent wrote:I just rang x-o. In fact they can't sell me that Vanguard US ETF as it's not covered by CREST. Hmmm.

To get around the weird behind-the-green-curtain that CREST is, you could look into having a broker account in the US. Fill in W8-BEN to assert you are a non-resident alien. Pay the 15% withholding tax in the US. Reclaim it in self-assessment as a Foreign Tax Credit under the auspices of the Double Taxation Treaty that exists betwixt the US and the UK. Alas this account will be unwrapped for UK.

It's not (just) CREST that's the problem, and I rather suspect the x-o agent just made an assumption.

It's not possible for retail investors to buy any collective investment from anywhere, inc. US ETFs, through a UK (or EU) broker unless it has a PRIIPs compliant Key Information Document (KID), and the vast majority of non-UK/EU collectives just don't bother to produce one as we're not a target market for them.

https://www.ig.com/uk/trading-strategies/how-to-buy-us-etfs-in-the-uk--investing-and-trading-220620
https://www.fca.org.uk/firms/priips-disclosure-key-information-documents

Why not just go for VUSA and less risk? Seems to be doing rather well of late?

Thanks for that suggestion. I currently have EVERYTHING in the US or global index funds, including a piddling £5k in VUSA specifically. One exception, about 25% in BRK.B.

Some have argued that BRK.B could be classified as a "factor" investment, the factor being "value" stocks. I'm not clever enough to know whether that might be true. But I think diversifying into the "growth" factor might be a good thing to do, in moderation.

I have to take you up on a couple of points: you mention a Vanguard stock. But other index fund providers are available. I've gradually been divesting from Vanguard (and have never had an account on their platform) due to them usually being just a tad more expensive than the hungriest of their competitors. For example, in most people's books 0.23% is probably a rather high OGC for any index fund. The marketing inertia in favour of Vanguard annoys me.

You also say "of late". But "Past performance is no indication of blah blah blah..." . Look at the graphs over the past 2 years or so. Or since 2009. And then try to ignore them. I fully expect that in about 10 months there will be a gigantic correction and that we'll all be muttering bitterly into our Cup-a-Soups. Losses are SO much more painful than gains. And the gains have been going on for crazy long. Buffett: "our favourite holding time is forever".

International wrote:To get around the weird behind-the-green-curtain that CREST is, you could look into having a broker account in the US. Fill in W8-BEN to assert you are a non-resident alien. Pay the 15% withholding tax in the US. Reclaim it in self-assessment as a Foreign Tax Credit under the auspices of the Double Taxation Treaty that exists betwixt the US and the UK. Alas this account will be unwrapped for UK.

Ah, thanks. This is the VERY FIRST thought that occurred to me, indeed: can I bypass CREST? I googled and found very little enlightenment.

A "broker account in the US" ... yep. I'm going to look into that. I've filled out enough W8-BENs now that despite their barbarous name they hold no fear for me any more. Do you have a broker account in the US yourself? I have a feeling it might not be plain sailing... but worth a shot.

mrodent wrote: Do you have a broker account in the US yourself?

I do, but only one and have had it for a long time, so can't compare the specific platform to others that might be better. It is quite old-fashioned.

My use is as I described in the reply you quoted and I have done that for decades with HMRC being happy.

One thing you have to watch out for if you go this route, that will be common for all the US brokers, is that the tax year and GCT rules are different in the US. Because of this the tax-related reports and calculations from the broker are not useful and you have to work out, for example, dividend income for the year yourself by picking through the quarterly statements. Not too hard but just another piece of administrivia.

mrodent wrote: Look at the graphs over the past 2 years or so. Or since 2009. And then try to ignore them. I fully expect that in about 10 months there will be a gigantic correction and that we'll all be muttering bitterly into our Cup-a-Soups.

I'm bothered about this too, especially as I'm on the shoulder between accumulation and retirement. US stocks have had such a strong run, especially tech, that they look expensive now. I went through the dot com bubble and worry we are in an AI bubble. What to do, what to do...

International wrote:I'm bothered about this too, especially as I'm on the shoulder between accumulation and retirement. US stocks have had such a strong run, especially tech, that they look expensive now. I went through the dot com bubble and worry we are in an AI bubble. What to do, what to do...

Haha. Buy some Cup-a-Soups. Or steel yourself to settle for 4% p.a. growth (on something like 2-year gilts: the growth would be CGT-exempt at least) ... before then seeing stocks worldwide shoot into the stratosphere. I've been switching to international index stocks: inevitably these are still heavily weighted by the USA, but it's a start.

As ever: don't try to time the market. But diversifying into lower-risk things is perfectly legitimate.

re US broker: Charles Schwab seems to be able to handle this. I've just signed up for an account with them. Thanks for giving me the idea .

I was looking for a single investment that I could advise a newbie to use for global exposure.
I decided that V3AB/V3AM fit the bill. So in my SIPP I now buy V3AB with my regular monthly savings.
I liked it as it is relatively low cost per unit (great for modest monthly savings).
It also fits the bill for global exposure.

WARNING OF ANNOYANCE

Having opened a Charles Schwab account and transferred some money there (no charges on receipt, exactly the USD sum sent from my Irish EUR account via Transferwise) I saw the balance this morning.

I just tried to order a buy of some Vanguard VUG (growth ETF). I got a message, "Order cannot be placed" and below "Client has legal residence in EU country and is not eligible to purchase US registered ETFs and ETNs."

I rang the London office and they confirmed that you can't buy US ETFs as a European resident! Possibly they might have thought of telling me that at an earlier stage. So you can only buy companies. Including BRK.B, which I shall now presumably do. Charles Schwab person at the London office said that he believed this applied to ALL US brokers, i.e. it is a regulatory thing.

My prediction that this route would not be "plain sailing" seems correct. Grrr. So much for free trade.

mrodent wrote:I rang the London office and they confirmed that you can't buy US ETFs as a European resident! Possibly they might have thought of telling me that at an earlier stage. So you can only buy companies. Including BRK.B, which I shall now presumably do. Charles Schwab person at the London office said that he believed this applied to ALL US brokers, i.e. it is a regulatory thing.

My prediction that this route would not be "plain sailing" seems correct. Grrr. So much for free trade.

UK residents can't buy US ETFs because they don't have a key investor information document (KIID). This is UK law (it comes from the EU and also applies to EU residents). It isn't an American requirement.

One way around this is to see if you can become registered as a professional investor (they don't need KIIDs). Some brokers won't let private investors become professional, even if they clearly meet the criteria.

There is nothing to stop UK investors from buying the Irish domiciled ETFs because these have KIIDs (as they are aimed at British and European private investors).

SalvorHardin wrote:UK residents can't buy US ETFs because they don't have a key investor information document (KIID).
...
One way around this is to see if you can become registered as a professional investor

Thanks for this info. If I understand you right, this means that Charles Schwab accepts me as a professional investor. Nothing to do with registering with the FCA (or something else in the UK) to attain that status.

However, I'm instinctively quite wary of trying to claim such a status. If ever there gets to be some meltdown anywhere it's usually going to be preferable to say I'm officially an averagely stupid and uninformed person, in order to be sure of having maximum consumer protection. It seems unlikely that some regulator in the UK would find out that I'm registered as a professional with a broker in the US and be able to say "aha! No compensation for you sonny!" ... but it also doesn't seem worth risking it to buy a particular US financial product.

This is a first though: the first occasion I've been able to say Brexit might actually have had a potential benefit. Except that it wasn't, because this KIID nonsense has not been abolished, and presumably never will be.

In fact I'll probably just repatriate the cash and close the account.

mrodent wrote:WARNING OF ANNOYANCE

Having opened a Charles Schwab account and transferred some money there (no charges on receipt, exactly the USD sum sent from my Irish EUR account via Transferwise) I saw the balance this morning.

I just tried to order a buy of some Vanguard VUG (growth ETF). I got a message, "Order cannot be placed" and below "Client has legal residence in EU country and is not eligible to purchase US registered ETFs and ETNs."

I rang the London office and they confirmed that you can't buy US ETFs as a European resident! Possibly they might have thought of telling me that at an earlier stage. So you can only buy companies. Including BRK.B, which I shall now presumably do. Charles Schwab person at the London office said that he believed this applied to ALL US brokers, i.e. it is a regulatory thing.

My prediction that this route would not be "plain sailing" seems correct. Grrr. So much for free trade.

It applies to all UK (and EU) brokers ... but umm, hello ... viewtopic.php?p=646339#p646339

mrodent wrote:

SalvorHardin wrote:UK residents can't buy US ETFs because they don't have a key investor information document (KIID).
...
One way around this is to see if you can become registered as a professional investor

Thanks for this info. If I understand you right, this means that Charles Schwab accepts me as a professional investor. Nothing to do with registering with the FCA (or something else in the UK) to attain that status.

However, I'm instinctively quite wary of trying to claim such a status. If ever there gets to be some meltdown anywhere it's usually going to be preferable to say I'm officially an averagely stupid and uninformed person, in order to be sure of having maximum consumer protection. It seems unlikely that some regulator in the UK would find out that I'm registered as a professional with a broker in the US and be able to say "aha! No compensation for you sonny!" ... but it also doesn't seem worth risking it to buy a particular US financial product.

You'd have to register as a professional investor with the UK broker and in doing so you automatically give up any FSCS protection with that broker; and the FSCS absolutely would find out 'cos when the broker went belly up the FSCS will only consider compensating the broker's retail clients, and a professional investor isn't considered as a retail client.