I have several investment trusts which provide a decent level of income. Some have reasonably low charges such as City of London with OCF of ~0.45%. Others have higher charges and in particular I have been looking at my 3 income trusts focussed on the Asian markets - Aberdeen Asian Income, Henderson Far East and Schroder Oriental. Ongoing charges for these trusts are 1.25%, 1.21% and 1.34% respectively - an average of 1.26%.
They all provide a reasonable income yield, but at the back of my mind, I am wondering whether the higher yield comes at the expense of overall performance.
The Alternative
I believe the Vanguard Developed Asia Pacific ETF (VAPX) will give me exposure to roughly the same markets as the investment trusts however the ongoing charges are much less - just 0.22% which will save me over 1.0% in charges every year - that’s just over £100 for every £10,000 invested.
The fund was launched in May 2013 and tracks the FTSE Developed Asia Pacific (ex Japan) index. The principal areas of investment focus are Australasia (45%), S. Korea (25%), Hong Kong (22%) and Singapore (8%).
The cumulative return for the index over the past 10 yrs is 156% - annualised cagr 9.86%.
The current yield is around 3.25% and paid quarterly. As with the Vanguard All World ETF which I purchased last year, the dividend distribution amount is a little unpredictable which is something I am having to adjust to - I am not sure how much I will receive at the end of each quarter - but a minor inconvenience compared to the saving in charges.
The other saving is on platform charges - with my broker AJ Bell Youinvest there are no charges for holding ETFs (or ITs to be fair) compared to the 0.20% charge for holding funds - for example, I could have selected Vanguard's Pacific (ex Japan) Stock Index fund which would work out at 0.43% total charges.
I have had a good run with my investment trusts over the years but the time has come to wave bye-bye to the higher charges. The 3 ITs were sold earlier this week and replaced with the Vanguard fund at a purchase price of £15.80. I will incorporate these changes when I next update my investment trust income portfolio.
What do you think? Is this a sensible exchange? Anyone else hold the Vanguard ETF?
Hi John
ReplyDeleteNice work on the expense reduction. What do I think? When it comes to expenses you're pushing on an open door with me. I've seen enough analysis (in fact Monevator has just published more today) to suggest that passive low cost investing on the average wins against active over the long term and it's how I invest.
I don't know what return I'll get year on year as that is out of my control and dictated by Mr Market. I do however have control of expenses and fight them hard.
Cheers
RIT
RIT,
DeleteThanks for stopping by.
The more I research low cost index investing, the more persuaded I am by the logic. It is taking me a while but I guess maybe you CAN teach old dogs new tricks!
As you say, we all have a choice regarding the fees we pay on our chosen investment route. I do think some managers can add a bit more value to justify the extra fees for the managed fund or trust but generally, the low cost passive will generate a better return than the more expensive managed fund over time.
I have been wondering recently how long before the likes of IBMs 'Watson' can deliver the perfect investment solution to any given situation!
Interesting I have some of the same ITs, Although geography wasn't my best subject I'm sure your map shows China included, which would change the proposition somewhat. The VAPX doc shows 22% Hong Kong but not a significant amount of mainland China in the geographical spread.
ReplyDeleteErmine,
DeleteI think it is fair enough to include China in the map. Hong Kong is Asia's second largest exchange behind Tokyo and half of the companies listed are from mainland China - some have a dual listing with Shanghai.
What do you think about the charges on the ITs?
Good decision
ReplyDeleteCheers Stephen!
DeleteDid you consider IAPD? Higher yielding regional ETF.
ReplyDeletePossibly not as I do not know what IAPD stands for?
DeleteIt's Ishares Aisa Pacific Select Dividend ETF. Quite heavily Australia-based though (because many of the regional high dividend payers are based there).
ReplyDeleteMany thanks for getting back with clarification!
DeleteI have had a brief look and my initial impression is that I would feel uncomfortable with a holding of just 30 shares, compared with over 350 in the Vanguard ETF. Also, as you say, quite a large emphasis on Oz.
Also, the ongoing charges seem a little on the high side at 0.59%.
Thanks for offering this as an alternative - it may well appeal to other investors, but I will stick with the Vanguard lower cost option.