Vanguard mutual funds + Bonds

(PJ) #1

Are there any plans to offer many of Vanguard’s funds? i.e. The FTSE All-Share Index, Global Small-Cap Index, US Equities Index, LifeStrategy blended funds?

Also, will you be offering ‘Bond ETF’s’?


There are some bond ETFs offered already - the UK ones are down as ‘UK Gilts’ and one of them is the Vanguard UK Gilts ETF (VGOV).

There are some US ones too in this list - just search for ‘bonds’.

(Dimitri John Ledkov) #3

Stocks, Shares, ETFs are in scope for freetrade.

Mutual funds - no. Use vanguardinvestor to get those the cheapest.


Is that because mutuals are expensive for a stock broker to trade, or?

(Dimitri John Ledkov) #5

Because stock brokers don’t trade them at all! Stocks / ETFs and sometimes certain debt/bonds are listed on stock exchanges, and have many market makers to generate liquidity to buy and sell, and settle transactions electronically using CREST.

Meanwhile, mutual funds are typically only tradable with each of the provider directly and usually are priced at most just once a day (no instant trades). And typically have 5% entry/exit fees, literately for nothing, on top of annual fees and trasaction fees. And one has to draw up contracts to buy/sell these funds with each individual fund manager. Hence trading funds usually have high account fees.

This is very different for listed companies on stock exchanges, as one can more easily access liquidity through pleura of brokers, market makers, and the lit order book. And can in fact transaction these on low cost basis, in bulk, with an access to a large variety of investments with fixed (more or less) ongoing, or exit costs.

(Denislav) #6

Okay, as I like to learn all the time, I have a question related to bonds and bonds ETF. What are the main differences between the two? I guess that being a bonds ETF you put your money in a larger pool, then just buying a single bond? For some strange reason, I have found understanding this question a bit difficult. :expressionless: :man_facepalming:

(Emma) #7

Yeah that’s my understanding as well. If you ignore the bond bit and think of it the same as shares and ETFs. Instead of just 1 thing it’s a specific selection.

If you need help sleeping you can read this

(Denislav) #8

Thank you! :slight_smile: :ok_hand:

(Dimitri John Ledkov) #9

Bonds - you go to a broker that trades those directly, read prospectus (each bond issue is unique) and figure out which one to invest into, with prices quoted for 100GBP nominal (par) value usually, but traded potentially in larger blocks of like 1,000 or more 10,000/100,000/1,000,000. And then figure out if you want to trade out of them (because yields dropped, meaning prices of the bond increased), or just collect the interest until maturity. But bonds often trade above par (due to future income that one is buying, and forexample today one may pay a premium to get 7% coupon from a financially sound company, thus e.g. bond might trade at 105 for 100 nominal, thus making it more expensive / reducing yield you have).

I guess you can see a problem that people might not have 105,000 around to invest. Hence the ETFs come in, usually they track some benchmark that compiles a broad section of corporate/government/high-yield/foreign/usd-denominated/etc bonds. ETF provider buys all of these bonds for millions, slices them up into ETF shares, and voila one can get bonds exposure at reasonable prices/sizes of like 25GBP a pop. Replicating that would typically be impossible, unless one has millions to invest into all the various issues of bonds.

But that’s what an ETF is - a exchange-traded fund, meaning a share/slice of a fund. And the underlying fund can have whatever investment strategy as it wants (within rules). One cute thing about ETFs is that the number of shares of it can be easily created and redeemed. That is because fund operator publishes the feed of their underlying investments, and large financial institutions can exchange millions of bonds, for hundred of thousands of a particular ETF units to then sell to the retail investors. Also known as creation units. And reverse, if many people redeem, these ETF units can be exchanged back for actual bonds themselves with the fund operator to effectively destroying ETF units as the bonds are released back to the market to be traded individually again.

One also needs to understand the open/close-ended distinction of funds. Which matters for Investment Trusts and Hedge Funds. Most ETFs and Mutual funds are open-ended, without a predetermined end date of cashing everything in, or a fixed amount of shares (ie. shares can be created/destroyed if NAV remains the same). But there are all sorts of investment vehicles that can have whichever structure you like. If interested, read all the documentation about a given ETF including all the rules as to how it was started, and under what conditions it may end, traded, what it can invest in, and how, and all the details.