Portfolio advice in the UK.

[nun]

I've been researching the DIY investment landscape in the UK, and it's not a pretty picture. Hargreaves and Landsdown is one of the biggest brokers in the UK and a place where many people go to buy funds because they supposedly have low transaction fees. You can buy lots of UK Vanguard index funds from them with ERs of 0.2 or 0.3.....they aren't as inexpensive as in the US.....but in the portfolios H&L recommends they don't mention index funds, but do recommend funds with initial charges and ERs of 1.5%. What do you think of the portfolio recommendations in the link Choose a portfolio style and then the amount you have to invest and you'll get the portfolio. I think the UK investor is getting screwed.

Master Portfolios | Ready made investment portfolio ideas

[Htown Harry]

Yuk. It's like looking back at our U.S. choices 20+ years ago.

[MichaelB]

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Originally Posted by nun I think the UK investor is getting screwed.

Sure looks that way.

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Originally Posted by Htown Harry Yuk. It's like looking back at our U.S. choices 20+ years ago.

+1

[nun]

Quote:

Originally Posted by Htown Harry Yuk. It's like looking back at our U.S. choices 20+ years ago.

Here are the index funds H&L offers in the UK. These are ok. Vanguard US Equity Index has an ER of 0.2% and H&L charges 2 pounds a month to own it, but no fees to buy and sell. There's even a FTSE equity index with and ER of 0.1%. So it would be possible to build a low cost portfolio....pity H&L continue to push expensive actively managed funds. Maybe they are not putting the investor's interests first.

Index tracker funds available through Hargreaves Lansdown

[nun]

Here are H&L's favorite funds, the "Wealth 150". I wouldn't buy any of them....

Wealth 150 | Favourite funds for investment | Hargreaves Lansdown

[nun]

FYI I asked H&L why no index funds appear in their recommended portfolios. Here is the answer, I think there might be another reason they don't mention.

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Tracker, or ‘passive’, funds aim to mirror the performance of an index such as the FTSE All Share. Active funds are run by fund managers who choose a portfolio of stocks they believe will outperform the index. Advocates of passive funds cite low charges as a key consideration - they are cheaper than actively managed funds because there is no fund manager or analysts to pay. If they perform as designed, the returns should mirror the index, less the fund’s charges. We offer access to many passive funds via our Vantage Service, but given their relatively homogenous nature there would be little or no value in producing a list of 'favourites’, or including them in our Master Portfolios. Actively managed funds, on the other hand, have extremely diverse performance, and investors must choose carefully in order to maximise returns. A high quality actively managed fund can offer significantly higher returns than its benchmark index. A poor actively managed fund is an expensive mistake. The challenge is to avoid the mediocre and identify the potential star performers. This is where the Wealth 150 and our Master Portfolios can help. Please note the information contained in this e-mail should in no way be construed as personal advice. If you are unsure about the suitability of a product or investment or do not know how best to proceed you should seek professional financial advice.

[Lagniappe]

Nun,


Do vanguard funds have to be bought from a broker in the UK? Is there no direct sales channel?

I am curious because I am considering a move to the UK.

[nun]

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Originally Posted by Lagniappe Nun, Do vanguard funds have to be bought from a broker in the UK? Is there no direct sales channel? I am curious because I am considering a move to the UK.

You can buy direct form Vanguard UK, but the minimum is 100k pounds I think. So practically speaking you have to go through a broker like H&L.

However, here's a word of warning. If you are a US tax payer, ie a US citizen or US resident alien, don't buy foreign mutual funds as they have bad US taxation consequences. So all of the funds offered in the UK should be avoided. If you become a UK resident and are taxed on an arising basis by HMRC many non-UK funds will also attract bad tax consequences. The way around this Catch-22 is to invest in US Vanguard ETFs as these are recognized as "distributing funds" by HMRC and are obviously ok with the IRS. If you have a US Vanguard account before you move to the UK you can continue to use it.

[hlfo718]

Low cost investing hasn't really caught on yet outside the US. Even though Vanguard has funds and etfs listed overseas, most people don't know who they are. It will take some time to catch on.

[nun]

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Originally Posted by hlfo718 Low cost investing hasn't really caught on yet outside the US. Even though Vanguard has funds and etfs listed overseas, most people don't know who they are. It will take some time to catch on.

There are plenty of Index funds offered in the UK with reasonable ERs, but there is resistance to them from the brokers, for obvious reasons, and the low cost indexing community isn't as sophisticated or large as in the US. The UK financial services industry is conservative and insular and hasn't been shaken up by an equivalent of Vanguard yet. I think there is still the perception that active funds are better than passive ones. So the UK investor keeps getting steered to funds that are good for the brokers and bad for the investor. I might be reading a bit too much into this, but what do you think of the following quote from H&L's webpage for Index funds. After index funds are described it ends with a subtle encouragement to take a look at "outperform"ing active funds.

http://www.hl.co.uk/funds/index-tracker-funds

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Index tracker funds generally look to own the same shares as an index, in the same proportions, and thereby track its performance. As there is no fund manager or analysts to pay, the annual management charges are generally low. A tracker fund does not aim to beat the index, only track it. This style of fund management is also referred to as passive (as opposed to active fund management where mangers choose underlying investments they believe will outperform). If you prefer, please view our actively managed funds.

[HPPH]

How about the Vanguard LifeStrategy funds (20 to 100%) available from H &L?

This is the closest portfolio of Boglehead's 3 Funds?

[nun]

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Originally Posted by HPPH How about the Vanguard LifeStrategy funds (20 to 100%) available from H &L? This is the closest portfolio of Boglehead's 3 Funds?

You can certainly make pretty some good low cost lazy portfolios with the range of index funds offered by H&L. The costs are higher than in the US, ERs of 0.3% and some on going platform charges aren't stellar, but they are ok.
My issue with H&L is that they push the expensive actively managed funds in their "master portfolios" and have a number of their own balanced funds that are also active with ERs of 1.7%. Do they really believe that you can beat the market sufficiently to warrant the fees or do they just like the fees..... The committed indexer has plenty to buy on the site, but even on the index fund webpage their is encouragement to look at actively managed funds because of their market beating potential rather than "only" tracking the index.