Question
This is a question about Exchange Traded Funds. It must be 8 or so years since a Canadian relative visited us and told me his portfolio had been made up entirely of ETFs. He had worked in the Canadian public services and had got a good payout when he retired early and ETFs were the vehicle he had chosen. I remember thinking back then that the Americans are usually 10 years or so ahead of us and that this would probably be an area I would need to look into a some point in the future. He appeared to be totally at ease with being 100% passively invested and this, in itself, was a bit of a revelation. Why was he so confident with them? " Why haven't I thought of this before?" I thought. There was definitely different market forces at work "over there": at some stage, I thought, it was likely to be more like the norm "over here" as well.
But "over here" in 2011 the main supermarket providers still appear to give prominence to collective funds like unit trusts. For some reason other collective investments, like ETFs and investment trusts, still appear as being positioned more on the "back burner" or specialist, if they are positioned at all. Is there any supermarket that overcomes this well and gives these financial instruments equal or top billing? Or are they going to be consigned to the "specialist " desk forever?
One difficulty is that it is difficult to switch out of providers that do not offer them (to those that do ) without incurring costs. Are there any ways round this? If I wanted to put the whole of next year's ISA allowance into to ETFs by way of a switch out, would it be worth it and what would be the best supermarket to use? Or is non supermarket vehicle the best option? Are our fund supermarkets too "conservative" (with a small "c"? )Answer
The simple reason that some fund supermarkets/platforms don't offer access to exchange traded funds (ETFs) is that ETFs are traded on stock markets - and not all fund supermarkets offer a stock market trading facility. When investment trusts are not available, it's normally for the same reason.
I think it's more a case some fund supermarkets not wanting the hassle/expense/complexity of offering a share trading facility than any concern on their part customers will end up taking too much risk. And, being cynical, it's probably less profitable for them versus unit trusts. Unit trust providers typically pay fund supermarkets around 0.25% a year to feature on their platform, ETF providers don't have sufficient fat on the bone to pay such charges.
However, there are several fund supermarkets/platforms that do offer share trading, hence they'll allow you mix ETFs with funds within an ISA. Take a look at our Guide to Fund Supermarkets and look for those supermarkets with a tick in the 'shares' column.
The cheapest option if you want to combine funds and shares (inc ETFs) on the same platform is Alliance Trust Savings. The dealing charge is a flat £12.50 (also applies to funds) and there's a £25 annual ISA fee although this does include two free trades.
You could get a cheaper deal if you don't mind using one platform for funds and another for shares. For example, online stockbroker x-o.co.uk doesn't charge for an ISA wrapper and charges just £5.95 per share trade.
I agree switching investments between fund supermarkets can be a pain and potentially incur charges, so using an online stockbroker for ETF/investment trust purchases independently from your fund holdings can make sense.
ETFs are a welcome introduction to our shores, but always remember that they're only as good as the index they track. If your chosen index falls you'll still lose money. The positive points of ETF investing are the range of different indices available for tracking and generally low charges. However, you can usually get as cheap a deal (if not cheaper) on mainstream indices via conventional unit trust tracker funds, so don't always assume ETFs are cheaper.
As for next year's ISA, I'd start by thinking about the type of investment that would best suit your portfolio. Once you've made this decision then consider whether a tracker is a good way to get this exposure and, if so, whether an ETF is preferable to a unit trust tracker. You might find our trackers page helpful.
This is a question about Exchange Traded Funds. It must be 8 or so years since a Canadian relative visited us and told me his portfolio had been made up entirely of ETFs. He had worked in the Canadian public services and had got a good payout when he retired early and ETFs were the vehicle he had chosen. I remember thinking back then that the Americans are usually 10 years or so ahead of us and that this would probably be an area I would need to look into a some point in the future. He appeared to be totally at ease with being 100% passively invested and this, in itself, was a bit of a revelation. Why was he so confident with them? " Why haven't I thought of this before?" I thought. There was definitely different market forces at work "over there": at some stage, I thought, it was likely to be more like the norm "over here" as well.
But "over here" in 2011 the main supermarket providers still appear to give prominence to collective funds like unit trusts. For some reason other collective investments, like ETFs and investment trusts, still appear as being positioned more on the "back burner" or specialist, if they are positioned at all. Is there any supermarket that overcomes this well and gives these financial instruments equal or top billing? Or are they going to be consigned to the "specialist " desk forever?
One difficulty is that it is difficult to switch out of providers that do not offer them (to those that do ) without incurring costs. Are there any ways round this? If I wanted to put the whole of next year's ISA allowance into to ETFs by way of a switch out, would it be worth it and what would be the best supermarket to use? Or is non supermarket vehicle the best option? Are our fund supermarkets too "conservative" (with a small "c"? )Answer
The simple reason that some fund supermarkets/platforms don't offer access to exchange traded funds (ETFs) is that ETFs are traded on stock markets - and not all fund supermarkets offer a stock market trading facility. When investment trusts are not available, it's normally for the same reason.
I think it's more a case some fund supermarkets not wanting the hassle/expense/complexity of offering a share trading facility than any concern on their part customers will end up taking too much risk. And, being cynical, it's probably less profitable for them versus unit trusts. Unit trust providers typically pay fund supermarkets around 0.25% a year to feature on their platform, ETF providers don't have sufficient fat on the bone to pay such charges.
However, there are several fund supermarkets/platforms that do offer share trading, hence they'll allow you mix ETFs with funds within an ISA. Take a look at our Guide to Fund Supermarkets and look for those supermarkets with a tick in the 'shares' column.
The cheapest option if you want to combine funds and shares (inc ETFs) on the same platform is Alliance Trust Savings. The dealing charge is a flat £12.50 (also applies to funds) and there's a £25 annual ISA fee although this does include two free trades.
You could get a cheaper deal if you don't mind using one platform for funds and another for shares. For example, online stockbroker x-o.co.uk doesn't charge for an ISA wrapper and charges just £5.95 per share trade.
I agree switching investments between fund supermarkets can be a pain and potentially incur charges, so using an online stockbroker for ETF/investment trust purchases independently from your fund holdings can make sense.
ETFs are a welcome introduction to our shores, but always remember that they're only as good as the index they track. If your chosen index falls you'll still lose money. The positive points of ETF investing are the range of different indices available for tracking and generally low charges. However, you can usually get as cheap a deal (if not cheaper) on mainstream indices via conventional unit trust tracker funds, so don't always assume ETFs are cheaper.
As for next year's ISA, I'd start by thinking about the type of investment that would best suit your portfolio. Once you've made this decision then consider whether a tracker is a good way to get this exposure and, if so, whether an ETF is preferable to a unit trust tracker. You might find our trackers page helpful.
Read this Q and A at http://www.candidmoney.com/questions/question418.aspx
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