No More Vanguard: Why I Started Buying Another ETF

Summary

In this video, the speaker shares their decision to switch from investing in Vanguard's FTSE All-World ETF to Invesco's accumulating version. The key reasons for this change include lower fees (0.15% vs. Vanguard's 0.22%), better tracking performance, and the ETF's alignment with their global diversification strategy. Despite this change, the speaker emphasizes they’re not selling existing Vanguard shares due to tax implications. They also discuss supporting providers that push for lower fees and briefly mention Amundi's ETF, but caution against it due to its past fund changes. The speaker’s decision reflects a shift towards a more cost-effective investment strategy while maintaining simplicity.

Takeaways

• 😀 The speaker switched from Vanguard's FTSE All-World ETF to Invesco's FTSE All-World ETF for a variety of reasons, including lower fees and better performance.
• 😀 Invesco's ETF has a lower total expense ratio of 0.15% compared to Vanguard's 0.22%, saving investors money in the long term, especially for larger portfolios.
• 😀 Over the past year, Invesco's ETF has outperformed Vanguard’s by 0.36% in terms of tracking the underlying index.
• 😀 Both ETFs track the same FTSE All-World Index, offering global diversification across approximately 4,000 stocks from both developed and emerging markets.
• 😀 Invesco’s ETF is safer from liquidation with a fund size of €380 million, while Vanguard still has an advantage in liquidity due to its larger trading volume.
• 😀 The speaker prefers to support fund providers like Invesco who actively push for lower fees in the European ETF market.
• 😀 Despite the shift, the speaker emphasizes that Vanguard's FTSE All-World ETF remains an excellent choice for global investors.
• 😀 The speaker’s strategy is to invest in a globally diversified ETF to avoid predicting which countries or sectors will perform best in the future.
• 😀 The speaker does not plan on selling their existing Vanguard shares because doing so would trigger tax implications that would outweigh the small fee difference.
• 😀 Amundi’s newly launched Prime All-Country World ETF was considered but ultimately rejected due to concerns about the provider's track record and potential fund changes.
• 😀 The speaker's investment strategy remains aligned with their goal of keeping things simple and ensuring long-term, tax-efficient global investment growth.

Q & A

Why did you decide to switch from Vanguard FTSE All-World ETF to Invesco FTSE All-World ETF?

The main reason for the switch is Invesco's lower Total Expense Ratio (TER) of 0.15% compared to Vanguard's 0.22%, which provides a small but meaningful long-term cost saving. Additionally, Invesco showed a better tracking difference, outperforming the underlying index by 0.36% in its first year, which was more attractive than Vanguard's 0.01% outperformance.

How significant is the fee difference between Vanguard and Invesco's ETFs?

The fee difference is 0.07% per year, which amounts to €0.70 for a €1,000 portfolio, €7 for €10,000, and €70 for a €100,000 portfolio. While it's not a dramatic difference in absolute terms, it can add up over time, especially with long-term returns.

What is the tracking difference, and why is it important?

The tracking difference shows how well an ETF matches the performance of its underlying index. Invesco's ETF performed 0.36% better than its index over its first year, which is significant because it shows better management and efficiency in replicating the index's performance. A smaller tracking difference is preferred as it means the ETF closely follows the index.

Why is it important to invest in a globally diversified ETF like the FTSE All-World?

A globally diversified ETF, like the FTSE All-World, gives exposure to both developed and emerging markets, allowing investors to capture growth from a wide range of economies. It reduces risk by spreading investments across numerous sectors and geographies, rather than relying on a specific market.

What are the advantages of Invesco's FTSE All-World ETF over Amundi's ETF?

Invesco's ETF has a broader index, covering 4,291 stocks, compared to Amundi's 3,497 stocks. This provides better diversification. Additionally, Invesco has a stronger track record of managing ETFs without drastic changes, unlike Amundi, which has a history of altering its funds unexpectedly, potentially causing tax implications for investors.

How did the fund size and liquidity affect your decision?

Invesco's fund size, which is around €382 million, is now large enough to avoid liquidation risks, and its liquidity has been improving, reducing the spread. However, Vanguard still has the advantage due to its larger trading volume. Liquidity is essential for reducing trading costs when buying or selling ETF shares.

Why is the timing of placing orders important for minimizing spreads?

Placing orders during the largest public exchange hours (9:00–17:30 CET) helps minimize spreads. Spreads tend to widen outside these hours, increasing the cost of trading. For recurring investments, this isn't a concern as orders are executed during regular market hours.

What role does tax efficiency play in selecting an ETF?

Tax efficiency is crucial when selecting an ETF, as it determines how much of the investment returns are taxed. Invesco's ETF is expected to be as tax-efficient as Vanguard's, based on their previous reports, whereas Amundi’s ETFs have had some concerns regarding tax treatment due to unexpected changes, which could lead to tax penalties.

How do you handle the tax implications of selling ETFs for a lower-fee alternative?

I avoid selling ETFs that are in profit simply to switch to a lower-fee alternative. Realizing profits early triggers taxes, which can outweigh any savings from lower fees. It's generally better to hold investments long-term to avoid unnecessary tax events, especially if the ETF aligns with your global investment strategy.

What impact does Invesco's proactive approach to lowering fees have on your decision?

Invesco’s proactive approach to lowering fees and offering better value makes them a more attractive option compared to Vanguard, which has been less responsive to market changes. As an investor, I prefer supporting companies that aim to lower costs for investors and offer better long-term value.