Question on ETF portfolio (UK investor)

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nico_ok
Posts: 4
Joined: Tue Apr 17, 2018 3:58 pm

Question on ETF portfolio (UK investor)

Post by nico_ok » Tue Apr 17, 2018 4:21 pm

All,

First of all big thanks to all contributors to this forum guys, I have always found some very good advice here!

I have a question covering investing in ETF. I currently have a stock and shares ISA with Fidelity (I know not the best platform but with a portfolio solely made of ETF it was a very low cost option). From opening the account in 2011 I have only invested in ETF (pretty much the same 5 index tracking funds), with the same sum invested every month in each ETF in the same allocated percentage; and with re-balancing of the portfolio every 6 months or so – I used not to be charged for switches so I may have done few more per year in the past - I guess a very common strategy.

Something must has changed in the last few months, among many other things, but I was not really able to get a comprehensive answer from Fidelity help-desk. Basically I can no longer purchase the exact desired percentage of ETF as in the past but instead I am buying the closest number of units to such amount. As unit prices vary a lot between ETF – ranging in my case from say £30 to over £100 – you can understand it’s impossible to maintain my ideal mix and a cash balance builds up every month (and obviously when I want to use this balance to invest I end up paying additional brokerage fees…). Fidelity told me that this has occurred because now I can buy these ETF with live prices, which unfortunately is something irrelevant for my strategy.

So the issue is actually double, both impossibility to invest following exactly my strategy and additional fees to be paid to re-invest a cash pot which builds up every month. Based on the above, I have the following questions:

1. Do you know if this ‘issue’ is to be expected with all UK brokers (or all brokers in general)? I have contacted AJ Bell and Hargreaves Lansdown (2 of the 3 platforms I was considering to transfer my ISA to, if solely investing in ETF) and it’s the same for them, I think at least (answer was not 100% convincing..) - still waiting email back from Interactive Investor...

2. Assuming this applies to all platforms, would you therefore say investing in OEICS/UT (index trackers anyway similar to what I have now) is preferable for what I am trying to achieve? I understand they have minimum amounts to invest but can you actually buy any exact amount above such minimums?

Clearly deciding the instrument type and frequency of trading will impact the decision on which platform I will move to, so super keen to resolve this ASAP (have stopped regular saving for the time being which is killing me given the current direction of travel of my assets...). Thanks a lot for your time, really look forward to some expert opinions

Nico

TedSwippet
Posts: 1632
Joined: Mon Jun 04, 2007 4:19 pm

Re: Question on ETF portfolio (UK investor)

Post by TedSwippet » Tue Apr 17, 2018 5:32 pm

Welcome.
nico_ok wrote:
Tue Apr 17, 2018 4:21 pm
Do you know if this ‘issue’ is to be expected with all UK brokers (or all brokers in general)? I have contacted AJ Bell and Hargreaves Lansdown (2 of the 3 platforms I was considering to transfer my ISA to, if solely investing in ETF) and it’s the same for them, I think at least (answer was not 100% convincing..) - still waiting email back from Interactive Investor...
Sizeable prices for ETFs is a known problem for investors wanting to diversify somewhat modest amounts.

From the sound of things, what you are looking for is the ability to buy, hold, and sell 'fractional' shares of an ETF. As far as I know -- which admittedly may only be anecdotal -- only Nutmeg offers convenient fractional ETF share trading to retail customers. Unfortunately however, Nutmeg's annual account charges are unlikely to make this worthwhile.

Presumably you have considered rotating your purchases, so that rather than buying some of each of five ETFs each month you instead buy more of just one each month but switch to a different one each month? Depending on the ratio of existing holdings to monthly inputs, that may not leave you out of balance to any significant degree overall.
nico_ok wrote:
Tue Apr 17, 2018 4:21 pm
Assuming this applies to all platforms, would you therefore say investing in OEICS/UT (index trackers anyway similar to what I have now) is preferable for what I am trying to achieve? I understand they have minimum amounts to invest but can you actually buy any exact amount above such minimums?
Generally, yes. Unit trust and OEIC trades and holdings are recorded to between two and perhaps four decimal places. If one has a high unit price you can sometimes still be left with a small chunk of cash where something rounds off the end of this -- I recently bought a Vanguard OEIC with a unit price of around £200 and wound up with about £2 or so uninvested. Nowhere near as annoying as £199 would have been, of course.

The main problem with this approach is that many UK platform now charge percentage fees for holding unit trusts and OEICs, but not for ETFs. These charges are usually in the range of 0.25% to 0.45%, and you should avoid them (they are higher than the fund TERs!). The main flat-fee or no-fee platforms are Halifax Sharedealing (also in their iWeb and Lloyds guises -- I use iWeb and thoroughly recommend them), Interactive Investor, and Alliance Trust. Also a couple of newcomers whose names escape me at the moment. There is a handy platform comparison chart here, regularly updated.

[ ETA: I have just remembered that some time ago now I had a Barclays (at least, I think it was Barclays) platform account that would only allow trading in whole units of unit trusts and OEICs. That's the only time I can recall encountering this with unit trusts and OEICs, though, and things may have changed since then even at Barclays (or wherever). I can say for sure that Halifax/iWeb/Lloyds, Interactive Investor, and Alliance Trust all fully support fractional unit trust and OEIC trades and holdings though, because I currently have accounts holding OEICs at all three. ]

nico_ok
Posts: 4
Joined: Tue Apr 17, 2018 3:58 pm

Re: Question on ETF portfolio (UK investor)

Post by nico_ok » Tue Apr 17, 2018 6:16 pm

Thanks a lot for the quick reply Ted

Unfortunately you have confirmed what I suspected, sort of weird that it was not the case for years until recently. Ideally I would have avoided rotating purchases, I am also managing investments of few relatives / friends so it's good if I can keep things as simple and as less time consuming as possible

I did notice a different choice of best providers if investing in ETF/shares vs. funds from a cost point of view; for decent size portfolios percentage based can be very punitive (and frankly I struggle to justify from a service offered point of view)

Interactive Investor offers very competitive fees structure, unfortunately I have read lots of very bad reviews on their service since their takeover of TD; I am requesting pretty simple stuff but give it's almost all I have I would also expect a decent level of service. Halifax SD inside an ISA doesn't offer a great choice of funds which is unfortunate as they would be probably second cheaper; Alliance seems quite good despite recent price changes. Iweb unfortunately would cost me a bit more for mainly a regular saver with just few trades/switches a year, but I really like their simple website

Basically nothing is perfect so have to compromise somewhere. Given your experience with both Interactive Investor and Alliance, what are your thoughts of these platforms? I find easier searching / filtering funds in Alliance interface, for example in II advanced search is pretty basic and would not allow me even to properly sort funds by OC... Based on my calculations II would be the cheaper followed by Halifax and Alliance not too far off; after these 3 things starts to be more expensive, so ideally I would like to chose between Alliance and II - your thoughts / recommendations?

TedSwippet
Posts: 1632
Joined: Mon Jun 04, 2007 4:19 pm

Re: Question on ETF portfolio (UK investor)

Post by TedSwippet » Wed Apr 18, 2018 3:14 am

nico_ok wrote:
Tue Apr 17, 2018 6:16 pm
Interactive Investor offers very competitive fees structure, unfortunately I have read lots of very bad reviews on their service since their takeover of TD; I am requesting pretty simple stuff but give it's almost all I have I would also expect a decent level of service. Halifax SD inside an ISA doesn't offer a great choice of funds which is unfortunate as they would be probably second cheaper; Alliance seems quite good despite recent price changes. Iweb unfortunately would cost me a bit more for mainly a regular saver with just few trades/switches a year, but I really like their simple website.
I think a lot of the recent Interactive Investor bad reviews come from a) old Interactive Investor users who do not much like the switch to what is effectively TD's online platform (features in a different place, some things not "like the old days", etc), and b) old TD users who do not hold funds or OEICS, and so who do not benefit from dropping percentages for fund holdings but do see a new flat-fee. Personally, I have always found them fine for nearly a decade now, though to be fair I am 'passive' to the point of comatose. I hold accumulation fund units in a SIPP, so no dividends to collect, no tax certificates to worry about, and as this is not my main SIPP only very infrequent rebalancing trades.

iWeb can be pricey for regular investing, as they don't offer a discount for that. However, in their Lloyds guise you would pay some £40/year to hold an ISA but then just £1.50/trade for funds (more for shares and ETFs), so not bad for a decently sized portfolio overall. In their Halifax guise they (I think) also offer a regular investing discount. As for choice of funds, the breadth doesn't matter as long as the funds you will actually use are there. They offer all the main Vanguard and HSBC trackers, and also the decent Legal & General and F&C ones. What in particular are you looking for?
nico_ok wrote:
Tue Apr 17, 2018 6:16 pm
Basically nothing is perfect so have to compromise somewhere. Given your experience with both Interactive Investor and Alliance, what are your thoughts of these platforms? I find easier searching / filtering funds in Alliance interface, for example in II advanced search is pretty basic and would not allow me even to properly sort funds by OC... Based on my calculations II would be the cheaper followed by Halifax and Alliance not too far off; after these 3 things starts to be more expensive, so ideally I would like to chose between Alliance and II - your thoughts / recommendations?
I actually ignore the fund searching and ranking 'features' of all the platforms I use. I have not yet found one that is much good. None seems to offer a 'trackers only' filter, but by sorting by ascending charge where you can you normally find that the trackers bubble to the top (or at least, the trackers you would consider holding -- Virgin's FTSE tracker still charges a whopping 1%!).

What I do instead is to find the ISIN of the fund I want from a Morningstar (say) search, or more normally from the fund provider themselves, then locate that ISIN on my trading platform. I hold only Vanguard, HSBC and Legal & General OEICS, and when you know exactly what funds you are looking for, these platforms become much easier to navigate. If these three fund providers don't offer something, there is a good chance you don't want it!

I am not sure how you are calculating your costs, but with a £40/year charge and £1.50 per fund trade as standard, I can't quite see how either II or AT would undercut that. Perhaps the £1/trade for regular investing at II offsets the higher £80/year charge?

Anyway, honestly I would say that you would probably be fine with any of them (where 'fine' is perhaps described as "perhaps some different frustrations but all round at the same overall level"!). You can ignore other people's complaints about tax certificate delays since you are using ISAs. If you use accumulation units of your OEICs you can also ignore the complaints about delays in receiving dividends. Just be sure to first identify the funds or OEICs that you want, and then be sure that your selected platform offers all of them before deciding.

My concern with Halifax and chums is that they are so spectacularly good value that they might notice and raise prices. My concern with Alliance Trust is that they do not seem motivated to grow or develop that side of their business, and might perhaps sell to someone who would then try to make it a 'profit centre'. And my concern with Interactive Investor is that they may have bitten off more than they can chew with the TD takeover. Something to fret about all round there, then!

Finally, do you plan to move your existing ETF holdings intact, leave them where they are, or convert them to OEICs? There might be a few different considerations there depending on what you are going to do with what you have accumulated at Fidelity so far.

nico_ok
Posts: 4
Joined: Tue Apr 17, 2018 3:58 pm

Re: Question on ETF portfolio (UK investor)

Post by nico_ok » Wed Apr 18, 2018 5:14 pm

I didn’t know about the Lloyds offer, interesting, although similarly to Halifax SD I find the choice of funds under ISA a bit limited compared to others. I was reading in the £90 cost to II there are trading credits earned each quarter; they say that while quarterly payment is not refundable, you can accrue effectively 9 trades in the year, which is all I need to re-balance, probably even twice a year; so with II I would only really pay £1 pm/per fund which is also cheaper than most. Question: how they make money these guys?? Are all other platforms thieves or scale plays such a part...anyway...

I am actually quite set with II, what you said about complaints makes sense plus I am looking to invest super simply (ISA so no tax issues, accumulation, etc.) so I am not looking for anything fancy but only choice and cost I guess. Agree as well on research tools, I often end up having few web pages opened as I find very hard getting 100% complete info from any

In terms of categories, I look for the following (currently have only ETF with the usual Ishares, Vanguard, L&G, etc.):

1. equity: world developed
2. equity: emerging markets
3. property: global developed
4. gov bond: global developed, ideally headged to GBP, ideally short-term
5. gov bond index linked: global developed, ideally headged to GBP, ideally short-term
For 1-2 I used to also have a bit in growth and in small cap but lack of cheap options in terms of fund ongoing charges and higher number of dealings per year made me wonder the real benefit of this so eventually I went for simplicity. I may change as II/Alliance seems to have quite few options

A quick search of OEIC (I was not sure yet about going these route so I have only had a brief check) gave me the following – all seems to be available on both II and Alliance platforms:

1. Fidelity Index World P Acc
2. Fidelity Index Emerging Markets P Acc (if, as I read, the min top-up is £250 then I’d need an alternative)
3. L&G Global Real Estate Div Idx I Acc
4. Vanguard Glbl Sh-Tm Bd Idx GBPH Acc
5. L&G Global Inflation Lnkd Bd Idx I Acc

In terms of what to do with the ETF in Fidelity. I am in no rush to move them out – I do want to eventually to save a bit of money and moreover simplify the whole thing but I currently pay £45 pa and I did re-balance the portfolio fairly recently so I don’t feel in any hurry. My plan was start ASAP say with II and see how it goes for say 6 months; then when all good my idea was to convert to cash the ETF in Fidelity and then transfer over. Need some planning / reading obviously to minimize costs in the process; from what I read, being out of the market for a bit could be worth an easier / quicker / maybe cheaper ISA transfer: your thoughts on this, if only cash, how long a transfer may take? Or would you transfer the ETF over as they are? The irony is that if I did this (transfer to cash) when I started to look into it (1-2 months ago) I could have avoided some of recent rout just by luck :D

TedSwippet
Posts: 1632
Joined: Mon Jun 04, 2007 4:19 pm

Re: Question on ETF portfolio (UK investor)

Post by TedSwippet » Wed Apr 18, 2018 5:43 pm

nico_ok wrote:
Wed Apr 18, 2018 5:14 pm
Need some planning / reading obviously to minimize costs in the process; from what I read, being out of the market for a bit could be worth an easier / quicker / maybe cheaper ISA transfer: your thoughts on this, if only cash, how long a transfer may take? Or would you transfer the ETF over as they are?
A cash transfer will be relatively quick, on the order of perhaps a week or so. You don't really have any control over when it starts and how long it actually takes though, so there is something of a leap of faith here.

An 'in specie' transfer is longer. My longest was a SIPP that took nearly eight months to complete a move between platforms. Some of my holdings disappeared into thin air for months at a time. But the 'in specie' nature of the transfer meant I could be relatively relaxed about the delays, since at least I wasn't out of the markets and losing returns (this eight months, of course, happened to be decent ones for the markets at the time).

My own choice, then, is always 'in specie'. But quite a bit of this is because I am generally moving substantial amounts, where missing out on just a few good days in the markets would mean effective losses in the £thousands, so £150 or so to move everything intact is reasonable insurance for me. That might be the same for you, or maybe not. Only you can decide. (If transferring as cash, do be sure to have the providers transfer the ISA directly between them, so that you do not cash it in yourself.)
nico_ok wrote:
Wed Apr 18, 2018 5:14 pm
The irony is that if I did this (transfer to cash) when I started to look into it (1-2 months ago) I could have avoided some of recent rout just by luck.
I have an ex-employer pension that I will have to move to my SIPP at some point in the next year or two. Because it's held in a life insurance company, it will have to go as cash -- SIPPs and lifecos live in different fund worlds for the most part.

I am convinced that markets will race upwards as soon as I trigger this move, and stop racing upwards as soon as it completes. (I should probably think about buying short-term market futures as insurance against exactly that during the move!)

nico_ok
Posts: 4
Joined: Tue Apr 17, 2018 3:58 pm

Re: Question on ETF portfolio (UK investor)

Post by nico_ok » Thu Apr 19, 2018 5:27 pm

Good point around time out of the market and relative size of the portfolio, even more so these days (it would also feel sort of timing the market which is not ideal in how I go at this). I think it makes sense to wait and eventually transfer 'in specie' as you suggested. And for the smaller portfolios, investing in funds via % based platforms with no trading/regular investing fees seems quite cheap already (such as Fidelity) so I will leave there altogether until size makes II a cheaper option as well

Thanks a lot man, very useful chat, all the best and good luck!

BTW do you know if I need to close this thread or just leave it??

TedSwippet
Posts: 1632
Joined: Mon Jun 04, 2007 4:19 pm

Re: Question on ETF portfolio (UK investor)

Post by TedSwippet » Fri Apr 20, 2018 2:32 pm

nico_ok wrote:
Thu Apr 19, 2018 5:27 pm
Thanks a lot man, very useful chat, all the best and good luck!
You're welcome.
nico_ok wrote:
Thu Apr 19, 2018 5:27 pm
BTW do you know if I need to close this thread or just leave it??
No 'closure'. Just leave it. It will quickly turn into ancient history as it becomes buried under new posts. :-)

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