Hello, Iām a pretty new investor and decided to go for a pound cost average strategy and long term investing. My plan is to invest in an S&P 500 UK ETF on a monthly basis but as there are many of them, I am not sure which one to go with.
I have been looking at the iShares ones, specifically CSP1 and GSPX. The price is massively different, though I suppose that really doesnāt matter much.
I think CSP1 actually looks better for the following reasons:
Dividends are automatically reinvested - I thought this would lead to better performance because not everyone would otherwise reinvest their dividends but that might be flawed logic?
Ongoing charges seem to be lower than GSPX
However, there are some weird differences in the performance of the two ETFs which is strange considering theyāre both tracking the same thing as far as I understand it.
The 1 year growth for CSP1 is 18.3% whereas for GSPX itās 24.8% and Iām unsure where the difference comes from.
Sorry for the long post, just looking for a recommendation as Iāll be in this for at least 10 years so want to make the right choice. If you think there is a better S&P 500 ETF out there, feel free to recommend that too.
And finally, are there any other things I should take into account when picking an ETF?
I have recently been looking at which S&P to follow. I was drawn to the GSPX and have done as much research as I can, before getting overwhelmed. There is some chatter on the different funds and currencies in which they invest, but it looks like any fund difference is minimal. From what I can gather, if you have a fund worth Ā£10 a share and one worth Ā£100 a share, you literally have 10x the investment in the Ā£100 option. It is obviously easier to accumulate the smaller value option and buy 1 X Ā£10 a week rather than putting Ā£100 in straight away. Ultimatly you would have the same stake though. This is just my understanding and Iām sure than someone will correct me if wrong, and obviously do your own research etc.
Well, just accounting for different providers already eliminates half of the entries.
The second factor is accumulating vs. distributing.
Then there is hedged vs unhedged.
There are even more potential differences, but that should cover the above.
Iāve also wondered, I just assumed they all track the same 500 companies obviously. The only difference being the prices making different entry points depending on affordability .
Iām sure thereās a lot more to it than that but thatās how Iāve looked at it
No, not necessarily. Some newer funds will be priced cheaper, and sometimes funds that get too expensive will split into smaller/new funds so that investors can continue to invest.
It isnāt a case of the more expensive stuff being better.
Ok, there are quite a few differences; letās start with the big one:
The little circle on the left shows the provider/issuer of the etf, āVā stands for Vanguard, Ishares is Ishares by Blackrock and the third one (HSPX) is HSBC (keep in mind that in freetrade HSBC funds are available only with freetrede PLUS). Now based on the different issuer/variations, but even among the same issuer (as you can see there are 2 Vanguard and 3 Ishares) there are even more differences.
One of those is the replication method, since these funds are trying to track an index (here the s&p500) there are different ways to do it. Vanguard and HSBC are using something called āfull replicationā, which means they are trying to track ALL the companies within the index. Ishares uses āoptimized samplingā, so they have a fancy statistical way of choosing some companies in order to replicate the index.
Another difference is the expense ratio, that is how much you have to pay per year in order to keep the fund. Most of the Vanguard and Ishares ones cost 0.07%, while the HSBC one 0.09%.
A pretty big difference is whether the fund is distributing (IUSA, VUSA and HSPX) or accumulating (CSP1 and VUAG). The former means that the dividends are being payed back to you in cash, while the latter automatically reinvests the dividends within the fund.
By the way since I mentioned dividends, if you take into account only the distributing ones, there are differences based on how frequently the dividend is payed. VUSA and IUSA pay quarterly (4 times per year), while HSPX Semi annually (twice per year).
For the sake of completeness, I will add another difference, which is whether the fund is currency hedged or not. All these funds are unhedged, which means that the value of the fund might change based on the pound/dollar exchange rate. tl;dr if the pound increases its value compared to the dollar the fund performs worse and vice versa. Freetrade actually has a GBP hedged etf (IGUS). If you choose this you wonāt have to worry about the pound/dollar relationship, but it is more expensive (0.20% expense ratio).
There are other differences like the fund size, but I would say the ones above are the most important.
Youāll find that everything except tracker expenses evens out over the year. Freetrde is of course free, but in general, you wouldnāt own more than one because of dealing expenses.
Recently joined the platform following the recent Reddit saga, I had looked to get into investing a while back but was put off by the feeās I was seeing as I would only be doing low value buys.
Anyway, while I have done a few āfunā buys I would also like to get some long term stuff going and one of the big recommends seems to be the S&P 500, however when I search that in the app I am seeing many different results with prices ranging from Ā£6 to nearly Ā£300 yet all listed as S&P 500, so what is the difference between all of these and what should I be looking out for?
Itās good advice to buy a broadly diversified index tracker ETF like one that follows the S&P 500 for US stocks, and other indexes for global stocks.
When you buy an index tracker, youāre buying baskets of shares in other companies ā in this case, baskets of shares of companies that are on the S&P 500 list. If you buy 1 share of an S&P 500 index tracker, you are indirectly buying about 0.067 shares of Apple, 0.010 shares of Disney, 0.007 shares of Netflix, and so on across about 500 companies. All S&P 500 trackers contain pretty much the same ingredients (with minor variations), and they all perform similarly to one another (with minor variations).
Crucially, the share price of the fund doesnāt matter. An S&P 500 tracker priced at Ā£300 per share just means youāre getting larger ābasketsā than one priced at Ā£6. Buying units of an S&P 500 index tracker is like buying sacks of potatoes at the supermarket: a 10 kg sack costs 10 times as much as a 1 kg sack, but youāre getting 10 times as much potato.
However, there are minor variations among funds. All funds hold back administration fees that reduce your return on investment, and some take more than others. Some funds literally buy every one of the stocks in the index, while others pick just a sample of them. Some update more frequently than others. Some use fancy derivatives in their processes. Some follow the index very closely, others diverge a little. Frankly, if you get an S&P 500 tracker from any of the main providers available for free through Freetrade (Vanguard, iShares, and Invesco) then youāre getting a decent deal. But there is documentation available online for every fund, and you should read up on the specific fund you are considering to understand a bit more about what youāre buying. Just Google the name of the fund, or go to the providerās website, i.e. Vanguard, iShares, or Invesco for the ones that are offered for free on Freetrade.
VUAG & CSP1 reinvest dividend income automatically. 0.07% fee
HSPX, IUSA, VUSA distribute the dividend income to you. 0.07% fee except HSBC which is 0.09%
GSPX (dist) & IGUS (acc) are currency Hedged verison which will hedge any changes in USD to GBP FX rate. I.e if GBP gets stronger relative to USD then this fund would perform better and opposite is true if it weakens
Fees are higher for GBP hedged ETFs at 0.2%. Generally itās considered that currencies can fluctuate in both directions over the long term so hedging is appropriate in short term investments
