Holding ETFs in a SIPP. Any disadvantages?

[Cabbage Patch]

A bit of background. I started investing into an ISA about 6 years ago and have become increasingly comfortable with the managing my investments. 2-3 years ago I consolidated both mine and my wifes defined contribution pensions we no longer contributed towards into two SIPPs held with Hargreaves Lansdown. We both make small contributions to these monthly in addition to our occupational pensions. Each SIPP contains 10 funds weighted towards global stocks. 30% held in Lindsell Train Global Equity and 24% in the L&G International Index tracker. Luckily only 3% is held in Woodford's Equity Income Fund as I reduced my exposure to this several times and this is now our smallest holding. The balance of funds are spread around Asia, Japan, Europe and the UK and are a mix of trackers and managed funds.

The ongoing situation with Woodford has caused me to look closely at my fund holdings. Whilst LTGE has performed well for me, so had Woodford for the first couple of years and I now feel exposed holding such a large stake in LTGE. Another consideration is that for some time I haven't felt that I get value from Hargreaves Lansdown. A while ago I tried to negotiate a reduction in the 0.45% platform fee based on the combined value of two SIPPs, two ISAs, a JISA and an active savings account we hold as a family but with no luck. To be fair other platforms didn't seem to work out much cheaper for me because I add to several funds in each account monthly. This got me looking at how I could reduce costs whilst staying with HL.

The cost for holding an ETF in a SIPP with HL is capped at £200 p.a (£45 in an ISA) so once you have more than £45K ia a SIPP your costs are lower with an ETF than holding a fund. Are there any disadvantages to putting the bulk of my capital into a global tracking ETF, I'm leaning towards HSBC ETFs Plc MSCI World ETF GBP (HMWO), and holding say 5-10% in LTGE so that I can add monthly without incurring trading costs? According to the data sheet this is made up of 1245 global stocks. Is this sufficient diversification or should I be adding something else? I'm aware that some people would suggest a bond holding alongside this but I'm looking at a 10 year timeframe to retirement and then moving into drawdown, hopefully for another 20 years!

Any thoughts or first hand experience?

[Derek Chevalier]

Cabbage Patch said:

I'm leaning towards HSBC ETFs Plc MSCI World ETF GBP (HMWO),

FYI - MSCI World would mean you are excluding emerging market countries and small cap equities

https://www.msci.com/world

[springfan62]

You could also consider VWRL Vanguard All World ETF.

The other option is move your SIPP to somewhere like interactive investor where they charge a fixed monthly fee of 7.99 plus 120 per annum, there is no percentage.

I moved my HL SIPP there and I have invested in a mix of Funds and ETF's.

My wife has a smaller SIPP which I have left at HL and invested just in ETF's but I do find the choice of ETF's quite restrictive.

[Cabbage Patch]

VWRL would give exposure to emerging and developed markets I think? OCF of 0.25% for the Vanguard fund vs 0.15% for HSBC HMWO. Performance of the two funds is similar, although HMWO betters VWRL marginally. I guess the either ETF would be OK. Any value in holding both in terms of security of capital rather than diversification? Does the broader strategy of holding ETFs rather than funds stand up to scrutiny?

I'm not sure that Interactive Investor would save me enough money to warrant the move away from HL, especially as I will continue to trade monthly into LTGE. In general I'm happy with the HL service and access through the website and app. Not sure their research is worth a bean though!

[JulianPH]

Have a look at the Fidelity platform. IIRC it is just £40 a year for holding ETFs.

[Derek Chevalier]

Cabbage Patch said:

VWRL would give exposure to emerging and developed markets I think? OCF of 0.25% for the Vanguard fund vs 0.15% for HSBC HMWO. Performance of the two funds is similar, although HMWO betters VWRL marginally. I guess the either ETF would be OK. Any value in holding both in terms of security of capital rather than diversification? Does the broader strategy of holding ETFs rather than funds stand up to scrutiny?

I'm not sure that Interactive Investor would save me enough money to warrant the move away from HL, especially as I will continue to trade monthly into LTGE. In general I'm happy with the HL service and access through the website and app. Not sure their research is worth a bean though!

Yes, VWRL is emerging and developed, but excludes small cap.

[Cabbage Patch]

Thanks for the pointers all.

Any thoughts on diversification? Any need to hold anything more than VWRL or HMWO?

[DonkeyApple]

Derek Chevalier said:

Cabbage Patch said:

VWRL would give exposure to emerging and developed markets I think? OCF of 0.25% for the Vanguard fund vs 0.15% for HSBC HMWO. Performance of the two funds is similar, although HMWO betters VWRL marginally. I guess the either ETF would be OK. Any value in holding both in terms of security of capital rather than diversification? Does the broader strategy of holding ETFs rather than funds stand up to scrutiny?

I'm not sure that Interactive Investor would save me enough money to warrant the move away from HL, especially as I will continue to trade monthly into LTGE. In general I'm happy with the HL service and access through the website and app. Not sure their research is worth a bean though!

Yes, VWRL is emerging and developed, but excludes small cap.

This is the part that I’ve never been able to get my head around. Just like most of the stocks in the FTSE are a complete irrelevance because their weighting’s are just too small to have any material impact and also just like the FTSE350 tracks the 100, not the 250 for the same reason, while I fully understand wanting exposure to emerging markets and small caps is there actually any point as to achieve large enough weightings for them to have a material impact on performance is surely going to increase the risk profile by a greater amount?

I remember having this drummed into me as a graduate but never got my head around it then. That may have been down to the brokers being drunk and me being hungover. But when I migrated over to run a risk dept at a global custodian you could see that the weightings required to deliver a meaningful potential performance carried a risk increase that outweighed this.

I’ve old school friends who are running funds for Deutsche, F&C as well as Fidelity and although we are usually three sheets to the wind when sitting at a table they have never come up with particularly compelling reasons for wrapping one’s higher risk holdings into the same fund as the blue chips.

I’ve always felt that the advantage of an index such as MSCI World is that in theory it covers you for global blue chip exposure, with weighting’s dominated by the key first world markets and that this enables you to then focus on which emerging markets or sectors are getting the money flow during this cycle and make selections directly while being able to monitor their performance precisely without the higher risk holdings being hidden and swamped inside a bundle of blue chips?

[Derek Chevalier]

DonkeyApple said:

Derek Chevalier said:

Cabbage Patch said:

VWRL would give exposure to emerging and developed markets I think? OCF of 0.25% for the Vanguard fund vs 0.15% for HSBC HMWO. Performance of the two funds is similar, although HMWO betters VWRL marginally. I guess the either ETF would be OK. Any value in holding both in terms of security of capital rather than diversification? Does the broader strategy of holding ETFs rather than funds stand up to scrutiny?

I'm not sure that Interactive Investor would save me enough money to warrant the move away from HL, especially as I will continue to trade monthly into LTGE. In general I'm happy with the HL service and access through the website and app. Not sure their research is worth a bean though!

Yes, VWRL is emerging and developed, but excludes small cap.

This is the part that I’ve never been able to get my head around. Just like most of the stocks in the FTSE are a complete irrelevance because their weighting’s are just too small to have any material impact and also just like the FTSE350 tracks the 100, not the 250 for the same reason, while I fully understand wanting exposure to emerging markets and small caps is there actually any point as to achieve large enough weightings for them to have a material impact on performance is surely going to increase the risk profile by a greater amount?

I remember having this drummed into me as a graduate but never got my head around it then. That may have been down to the brokers being drunk and me being hungover. But when I migrated over to run a risk dept at a global custodian you could see that the weightings required to deliver a meaningful potential performance carried a risk increase that outweighed this.

I’ve old school friends who are running funds for Deutsche, F&C as well as Fidelity and although we are usually three sheets to the wind when sitting at a table they have never come up with particularly compelling reasons for wrapping one’s higher risk holdings into the same fund as the blue chips.

I’ve always felt that the advantage of an index such as MSCI World is that in theory it covers you for global blue chip exposure, with weighting’s dominated by the key first world markets and that this enables you to then focus on which emerging markets or sectors are getting the money flow during this cycle and make selections directly while being able to monitor their performance precisely without the higher risk holdings being hidden and swamped inside a bundle of blue chips?

Lots of differing views

Buffett would go for 90% S&P on death

https://www.cnbc.com/2019/02/26/warren-buffett-wan...

while Bogle was also U.S. only

https://www.forbes.com/sites/simonmoore/2018/08/05...

I think there's a strong argument for including EM (even though the global markets are becoming more correlated)

https://thebamalliance.com/blog/dont-exclude-emerg...

and there's also an argument for tilting towards small cap in your portfolio as some of the factor based investment firms do.

The great thing is that the DIY investor now has the choice to implement any of the above (S&P, DM large + mid, Global) for 25bps or under. Maybe too much choice

BTW I need to pick your brains on FX - I'm sure I recall a thread or two a while back.

[DonkeyApple]

Do you want to PM me of start a thread?