ETF Alternatives

DataDude

Apologies if similar thread has been created before. I have seen similar ideas skirted but never directly.

I've always invested purely in total all world ETF's, but now with these off-limits due to deemed disposal etc.

I had explored investment trusts but not mad on the idea of active management and I suspect returns are exaggerated by changes in the premium/discount on NAV during large market volatility. If anyone has a "solid" IT that doesn't try to do anything overly fancy I'd be all ears. Someone suggest MNKS but it seems to have massively diverged from the market in recent times.

So where my head is now at is trying to construct a portfolio myself that tracks the index reasonably well but isn't overly burdensome to manage (i.e. too many stocks). I had contemplated just going in Berkshire Hathaway which seems to have fairly closely tracked the S&P over the years but not sure if this is the right play (and I believe they are again holding a lot of cash). Essentially I'm looking for anyone's experiences in building an relatively small pool of holdings (<15 stocks) that broadly matches the index over any time period.

Thanks

HillCloudHop

I don't think a portfolio of <15 stocks is consistently going to track the market long-term without regular reshuffling. This will result in you losing gains to CGT which defeats the purpose of it.

DataDude

HillCloudHop wrote: »

I don't think a portfolio of <15 stocks is consistently going to track the market long-term without regular reshuffling. This will result in you losing gains to CGT which defeats the purpose of it.

Yeah you’re probably right. I think I’m going to be forced into taking a punt on 4 or 5 large caps so. What a county we live in to essentially ban retail investors from ETFs!

HillCloudHop

DataDude wrote: »

Yeah you’re probably right. I think I’m going to be forced into taking a punt on 4 or 5 large caps so. What a county we live in to essentially ban retail investors from ETFs!

FCIT is a well diversified global investment trust that's existed since 1868. They hold over 400 companies and don't have a particular philosophy like Monks. 0.52% fee is reasonable when compared to other active funds on the market.
https://lt.morningstar.com/fav18yujpm/cefprofile/default.aspx?id=F0GBR052PD

DataDude

HillCloudHop wrote: »

FCIT is a well diversified global investment trust that's existed since 1868. They hold over 400 companies and don't have a particular philosophy like Monks. 0.52% fee is reasonable when compared to other active funds on the market.
https://lt.morningstar.com/fav18yujpm/cefprofile/default.aspx?id=F0GBR052PD

Looks like a very solid option. Thank you.

Rainmann

DataDude wrote: »

Apologies if similar thread has been created before. I have seen similar ideas skirted but never directly.

I've always invested purely in total all world ETF's, but now with these off-limits due to deemed disposal etc.

I had explored investment trusts but not mad on the idea of active management and I suspect returns are exaggerated by changes in the premium/discount on NAV during large market volatility. If anyone has a "solid" IT that doesn't try to do anything overly fancy I'd be all ears. Someone suggest MNKS but it seems to have massively diverged from the market in recent times.

So where my head is now at is trying to construct a portfolio myself that tracks the index reasonably well but isn't overly burdensome to manage (i.e. too many stocks). I had contemplated just going in Berkshire Hathaway which seems to have fairly closely tracked the S&P over the years but not sure if this is the right play (and I believe they are again holding a lot of cash). Essentially I'm looking for anyone's experiences in building an relatively small pool of holdings (<15 stocks) that broadly matches the index over any time period.

Thanks

You could use etoro and copy a fund manager who is in line with what you a looking for. Every-time they make a trade you will copy them. Because you will be buying the individual stocks you would just be paying capital gains.

Investment Trusts all the way OP.

*assumption is you are maxing pension contributions.

rodneytrotter15

I was about to pull the trigger with DeGiro and invest €2,000-€3000 every 3 months in a Vanguard S&P ETF even with the complicated deemed disposal. The more I read about investment trusts it seems like a no brainer to change path. My investment horizon is 10-15 years and is really just something to compliment my pension in which I started maxing out my contributions in the last 10 months. FCIT seems to have a solid history and returns and well diversified. All that said I'm certainly no expert but am wondering what those that are more experienced think of a strategy of purchasing 2-3 units of FCIT quarterly over the next 10 years looks like ? Am I missing something here ?

DataDude

https://www.boards.ie/discussion/comment/117903932#Comment_117903932

If you’re going to be a ‘regular investor’ rather than lump sum as you have described - DO NOT PURCHASE AN ETF. The combination of deemed disposal (logistical inconvenience), but more importantly the inability to offset gains and losses make this suicidal. ETFs in their current state are only suitable for lump sum investors.

Investment Trusts are a better choice. You just need to find one that you like (for me that means not biased in any industry/sector) and low fees.

Good Luck!

FrankGrimes

When I was looking into investment trust, Scottish Mortgage Investment Trust caught the eye: past performance not an indicator of future success, but my word, that is compelling 2-5yr growth. Didn’t know off hand where to buy into it in Ireland and went a different direction with my investment as I wanted to gain hands on experience, but it may be worth exploring.

Scottish Mortgage is on Degiro.

It's current holdings are documented here.

https://www.bailliegifford.com/en/uk/individual-investors/funds/scottish-mortgage-investment-trust/

Easten

https://www.boards.ie/discussion/comment/117927346#Comment_117927346

I wonder are these suitable for Monthly Investments, as other posters have said they want to compliment the Pension. I'm already maxed out wrt pension contributions. I'd like Invest in their Health Innovation fund over the next few years till close to retirement. As ETFs are now seen as not suitable can someone give me a brief outline as to why these Trust funds are different.

Geuze

https://www.boards.ie/discussion/comment/117905410#Comment_117905410

If somebody buys just one ETF, for example a world equity ETF, does the second reason fall away?

I suppose not, as any possible loss on the one ETF can't be offset against other capital gains?

Geuze

An ETF has gross roll-up tax-free, combined with 41% exit tax at deemed disposal.

This is worse than 33% CGT, I presume?

https://www.boards.ie/discussion/comment/117931780#Comment_117931780

Yes they are

Patsy167

I found the following Blog post very useful for explaining ETF alternatives - https://blog.nerdie-investing.com/2020/12/diy-index-like-portfolio-stock.html

DataDude

https://www.boards.ie/discussion/comment/117931965#Comment_117931965

Unfortunately not. As even within the same ETF, gains and losses cannot be offset. So for lump sum that's ok (although as you rightly point out, bit annoying if you have other sources of capital gain/loss). But if monthly investing, if your February 2021 tranche is profitable but February 2025 is not when you come to sell. You can't offset them. Crazy stuff. I wrote to Revenue with worked examples and they confirmed my interpretation to be correct.

Geuze

@DataDude ,

to be clear, what you seem to be saying is that "pound-cost averaging" does not work with ETFs?

As in, if a market falls, keep saving 250 pm into the market, acquire the same assets at cheaper prices, bring down your average cost.

DataDude

https://www.boards.ie/discussion/comment/117952166#Comment_117952166

Yes. If you bought 1 share in an ETF for €100 in January and another share in the same ETF a year later for €200, then sold both shares the following year for €150 each. Under normal CGT rules you'd have no tax liability as the €50 gain on the first purchase would be offset by the €50 loss on the second. However for ETFs, the you'd pay income tax (41%) on the first €50 gain and there would be no credit given for the €50 loss as it is considered a separate transaction.

This tax treatment makes "dollar-cost averaging" style investing undesirable for ETFs

Geuze

@DataDude

See here:

https://www.askaboutmoney.com/threads/revenue-e-brief-on-etfs.224674/page-2

DataDude

https://www.boards.ie/discussion/comment/117953917#Comment_117953917

I'm not a tax expert and I agree with that guys observation that it seems illogical however I believe what he says contradicts what Revenue told me directly. See below for relevant extracts from my correspondance with them (this is from a few years back when US ETFs were still available and I was trying to confirm that they were the best option):

ME

"Irish/EU domiciled UCITS ETF’s 

I understand that each separate ETF would be ring-fenced and there can be no offsetting of losses at disposal (or deemed disposal after 8 years). My query relates to, if a number of transactions are made into the same ETF in the same year – would this principal still apply? For example if I were to make two separate transactions in 2016 into the same ETF.

o   Transaction 1 (June 2016) – buy 1000 units at €10 – Total cost €10,000

o   Transaction 2 (November 2016) – buy 1000 units at €20 – Total cost €20,000

In my 2024 tax return (Deemed disposal - assuming no other sale in interim period) if the unit price was €15 would my tax liability be

A.      0 – as total purchase amount in 2016 (€30,000) = current value?

B.      (€5000 *0.41) = €2050 as each transaction taxed separately with transaction 1 giving rise to a taxable gain with no offset from loss arising from transaction 2?"

Revenue Response

"Irish EU domiciled UCITS ETFs

·         example B is the correct result as each transaction is treated as a separate transaction. There is a gain on the June 2016 purchase of €5,000 @ 41% which gives a tax liability of €2,050 and a loss on the November 2016 purchase of €5,000 which is treated as a “nil” gain.   

"

namloc1980

ETF taxation is an absolute nightmare. Ask 10 people how ETFs are taxed or how monthly contributions to ETFs are taxed for deemed disposal and you'll get 10 different answers. Even tax advisors will give you different answers depending on their own interpretation.

And asking Revenue for guidance is a waste of time too as they won't give any clear guidance. Their section on Irish ETFs in their ETF briefing document just refers you to Investment Undertakings (which is written for institutional investors/life insurance companies) or offshore funds. Madness.

purethick

https://www.boards.ie/discussion/comment/117507014#Comment_117507014

You sure on the 0.52% fee? The KID seems to say 0.81% + 0.39% though I may have easily misunderstood how the KID conveys this...