ETFs

[Mellow Matt]

I'm thinking about putting a bit of spare money into a/some ETFs, but this is new territory to me! I've used up my £5k cash ISA allowance, and have a modest 5 figure sum that I could put towards some other saving scheme (or spunk on cars...). It looks to me like ETFs are a pretty good way to go; I was specifically looking at HSBC's FTSE100 Tracker (as I'm already with HSBC for my current account).

A couple of things:

- Is there much difference between different providers' ETFs? E.g. is an HSBC FTSE100 tracker going to be any different from anyone elses? The TER is 0.35% at HSBC, which from what I've read is quite good.

- Is there any point in messing around with Stocks and Shares ISAs? From what I've read I have to earn £10k through stocks/shares before I have to pay any CGT, so why would I need to put it in an ISA?

- Is there a better option than ETFs for me? Maybe bonds/gilts or even just a simple savings account, or something else I haven't thought of at all?

I shouldn't need access to the money for a few years (I'm 24 and renting, but don't have any aims to be buying property at the moment, but that may change, who knows?!).

[cailean]

If you are feeling more adventurous, I use ETCs for commodities (Silver, Tin, Sugar, Gold, Cooper etc). There are hundreds that you could get including baskets such as just Agriculture. I use Selftrade's website for dealing and they have some decent information for reading up on ETCs and ETFs as well as lists of what is available. Stay away from any leveraged ETC/Fs as you could loose more than normal ones. As with all investments you should do your homework and keep an eye on them and don't just buy and hold, but don't over trade or else all your money will go in trading fees.

[ringram]

Commodities are speculative investments. You can get ETF's with commodity companies which will pay dividends as well as rise with the underlying market etc.

[nomisesor]

Mellow Matt said:

- Is there any point in messing around with Stocks and Shares ISAs? From what I've read I have to earn £10k through stocks/shares before I have to pay any CGT, so why would I need to put it in an ISA?

.

Because the income / dividends will be tax-free.

[Mellow Matt]

nomisesor said:

Mellow Matt said:

- Is there any point in messing around with Stocks and Shares ISAs? From what I've read I have to earn £10k through stocks/shares before I have to pay any CGT, so why would I need to put it in an ISA?

.

Because the income / dividends will be tax-free.

Ah, that makes sense.

Thinking about it, why shouldn't I just open a spread bet account and go X £/point long on the FTSE futures, it amounts to the same thing I think? From what I can tell all I'd have to pay is the spread - no tax, no financing, no managing fee, plus I get the benefit of leverage so I still have a large proportion of my money left.

Edited by Mellow Matt on Wednesday 29th December 16:54

[Mellow Matt]

I didn't get around to doing anything about this in the end, but I'm looking at it again now it's a new financial year. The figure's now only a 4 figure sum (expensive few months!) but I think I should still be investing it rather than spunking it.

Does anyone have any answers to some of the above questions - i.e.

1) Why a FTSE tracker ETF in an ISA would be better than having a spread bet on the FTSE and investing the rest of the money elsewhere?
2) Is there much difference between different providers' ETFs? E.g. is an HSBC FTSE100 tracker going to be any different from anyone else's?
3) Is there anything else I should be looking at? (I don't want to be actively trading stocks & shares).

Cheers all

[cannedheat]

Mellow Matt said:

I didn't get around to doing anything about this in the end, but I'm looking at it again now it's a new financial year. The figure's now only a 4 figure sum (expensive few months!) but I think I should still be investing it rather than spunking it.

Does anyone have any answers to some of the above questions - i.e.

1) Why a FTSE tracker ETF in an ISA would be better than having a spread bet on the FTSE and investing the rest of the money elsewhere?
2) Is there much difference between different providers' ETFs? E.g. is an HSBC FTSE100 tracker going to be any different from anyone else's?
3) Is there anything else I should be looking at? (I don't want to be actively trading stocks & shares).

Cheers all

1) I imagine if you spreadbet, because of the leverage, you can lose vastly more than your original stake. If you put £1000 into an ETF, that's the max you could lose.
2) There may be difference in tracking error - the index tracking ETFs from the main providers will either hold the underlying (physical) or consist of derrivatives to replicate the index (synthetic). In either case one provider might have a better fund make up over another which replicates the actual index more accurately.
3)Look at the UK reporting/distributor status of the fund - ETFs are mostly domiciled offshore (Ireland/Luxembourg) so fall under the HMRC distributor/reporting status classification. If they dont hold either of these classifications then capital gains from the fund could/will be taxed as 'income' rather than as a capital gain. Most of the ETFs from the main providers will have this classification though.

The big providers are ishares (owned by Goldman Sachs, formerly owned by Barclays), DB X-trackers (owned by Deutche Bank), Lyxor and ETF Securities. HSBC are a reasonably new player in the market.

[Mellow Matt]

cannedheat said:

1) I imagine if you spreadbet, because of the leverage, you can lose vastly more than your original stake. If you put £1000 into an ETF, that's the max you could lose.
2) There may be difference in tracking error - the index tracking ETFs from the main providers will either hold the underlying (physical) or consist of derrivatives to replicate the index (synthetic). In either case one provider might have a better fund make up over another which replicates the actual index more accurately.
3)Look at the UK reporting/distributor status of the fund - ETFs are mostly domiciled offshore (Ireland/Luxembourg) so fall under the HMRC distributor/reporting status classification. If they dont hold either of these classifications then capital gains from the fund could/will be taxed as 'income' rather than as a capital gain. Most of the ETFs from the main providers will have this classification though.

The big providers are ishares (owned by Goldman Sachs, formerly owned by Barclays), DB X-trackers (owned by Deutche Bank), Lyxor and ETF Securities. HSBC are a reasonably new player in the market.

Thanks for the comments, they've provoked a few more questions though!

1) With spread betting I could just go £1 - £5 a point long on the FTSE, and then only need to put a couple of hundred quid in to support it (initially), and it's very unlikely that I'll lose much more than that if I lose at all - then I could use the remainder of my money to invest elsewhere, so I get to invest it twice in a way, because of the leverage. This appeals to me somewhat!
2) That makes sense, thanks.
3) This also makes sense, ta. How would one go about comparing different ETF FTSE trackers?
4) How would one go about getting it all wrapped up in an ISA? Would you go through the ISA provider (HSBC for me at the moment) to buy it, or would you buy it through a provider and then get the ISA provider to wrap it up?

Cheers

[cannedheat]

Mellow Matt said:

cannedheat said:

1) I imagine if you spreadbet, because of the leverage, you can lose vastly more than your original stake. If you put £1000 into an ETF, that's the max you could lose.
2) There may be difference in tracking error - the index tracking ETFs from the main providers will either hold the underlying (physical) or consist of derrivatives to replicate the index (synthetic). In either case one provider might have a better fund make up over another which replicates the actual index more accurately.
3)Look at the UK reporting/distributor status of the fund - ETFs are mostly domiciled offshore (Ireland/Luxembourg) so fall under the HMRC distributor/reporting status classification. If they dont hold either of these classifications then capital gains from the fund could/will be taxed as 'income' rather than as a capital gain. Most of the ETFs from the main providers will have this classification though.

The big providers are ishares (owned by Goldman Sachs, formerly owned by Barclays), DB X-trackers (owned by Deutche Bank), Lyxor and ETF Securities. HSBC are a reasonably new player in the market.

Thanks for the comments, they've provoked a few more questions though!

1) With spread betting I could just go £1 - £5 a point long on the FTSE, and then only need to put a couple of hundred quid in to support it (initially), and it's very unlikely that I'll lose much more than that if I lose at all - then I could use the remainder of my money to invest elsewhere, so I get to invest it twice in a way, because of the leverage. This appeals to me somewhat!
2) That makes sense, thanks.
3) This also makes sense, ta. How would one go about comparing different ETF FTSE trackers?
4) How would one go about getting it all wrapped up in an ISA? Would you go through the ISA provider (HSBC for me at the moment) to buy it, or would you buy it through a provider and then get the ISA provider to wrap it up?

Cheers

1) You can lose far more than your deposit on spreadbetting. What if you buy in at £5 point and there's a terrorist attack or earthquake somewhere and the FTSE drops 200 points. You're then looking at a £1k loss position which has wiped out your £500 deposit and the provider is making a £500 margin call on you. Of course you can put stop losses in place but you can certainly lose more than your initial deposit on spreadbetting

2) Not sure on the best comparison tools - try a website like trustnet.com. The fund factsheets on the ETF providers websites are also a good source of info.

3) With HSBC (my employer), to trade ETF's you'd need to open an InvestDirect share dealing acc. This can be done through your internet banking. Within the InvestDirect acc you'd then need to apply for a S&S ISA. This is just a wrapper acc to invest within. You'd then deposit cash into this acc and use this to buy the ETF shares you wanted. There would be a £12 dealing fee but from memory you don't pay SDRT on ETF shares.

Unless you're expecting to make £10k plus profit, tbh, I wouldnt bother with the ISA route - it's just extra 'faff'.

Edited by cannedheat on Tuesday 12th April 19:59

[Mellow Matt]

OK, thanks for all the info!