Freetrade 2020 ETFs

Freetrade 2020 ETFs

Today’s post is about low-cost stockbroker Freetrade’s new list of ETFs.

Freetrade

Adam Dodds

I reviewed Freetrade back in June 2019.

Trading 212

Freetrade’s big rival in the UK is Trading 212, who are from Bulgaria but FCA-authorised.

  • They now style themselves as a London-based fintech firm.

T212 initially targeted CFD traders with mobile ads, but they also offer (free) ISAs and taxable share accounts.

  • I never saw the ads and eventually found the firm via Reddit, where their supporters say they are shouted out by Freetrade cheerleaders who invested in the latter firm’s crowdfunding rounds.

We reviewed Trading 212 in March 2020.

  • The Trading 212 website has a handy table comparing the features of the service against its rivals.

Key for us are:

  • more stocks than Freetrade
  • no FX fees
  • limit orders and stop losses
  • a website application (not just a phone app)
  • a free ISA

The obvious application for me was to trade US stocks with them.

Pies

T212 Pies

Since my review, T212 have added a new feature called Pies, which amounts to designing your own portfolio to which you can add through a regular monthly subscription.

  • This feature is underpinned by the use of fractional shares (which Freetrade also supports).

Pies have two goals:

To have a diversified portfolio and easily maintain diversification balance in the long term, as markets move up and down.

To be able to make contributions to your portfolio without having to make complex calculations in order to allocate the right amount of money to each company/ETF you own.

In other words, they act like a home-made fund with a very low minimum contribution, which is great for those with smaller portfolios.

Pies can hold both stocks and ETFs, up to a maximum of 100 securities.

  • And you can have multiple pies, though you can’t nest one pie within another (yet).

You can also manually contribute funds to a pie at any time, and top-ups can by according to your original splits, or self-balancing (more funds added to underweight instruments.

  • I think this is a very useful feature.

Adding to a T212 Pie

Freetrade Plus

A question most people ask is how do these platforms make their money?

  • The most common answer up to now has been that T212 cross-sell to their more profitable CFD business, but Freetrade’s only source of income was their £36 a year ISA account.

In recent months, Freetrade has announced a Plus account which will cost £120 pa, and recent statements are clarifying how they will entice people to use it.

Features of the Plus account include:

Limit orders, stop losses, and a much longer list of stocks, with specially curated collections to help you discover them easier [sic].

With collections such as ‘Fighting Covid-19’ and ‘Fighting climate change’ you can find the companies involved in the most important issues affecting the planet, while others like ‘Cloud computing’ allow you to uncover stocks that meet your investment needs.

The ISA fee is included in the Plus fee and Plus customers also get priority customer support.

Last month, Freetrade explained how the stocks lists will differ between the Basic account (now renamed as a GIA) and Plus.

For plus:

Our long-term vision is to make all listed companies globally, from Hong Kong to Latin America, available in Plus. Starting this week, we will begin to add new UK and US stocks available exclusively to Plus members.

Which means:

  • FTSE All-Share
  • FTSE AIM All-Share
  • S&P SmallCap 600
  • Plus any other highly requested small and micro-cap stocks not included in these indices

The “Free Universe” will be:

  • FTSE 350
  • FTSE AIM 100
  • MSCI US Prime Market (the 750 largest companies listed on major US exchanges)
  • IPOs, SPACs, and other highly-requested large cap companies

More significantly for current users:

A small number – specifically 84 London-listed and 52 New York-listed stocks – currently available to all Freetrade users will become part of the Plus universe.

If you hold one of those stocks and decide not to become a Plus member, you will be able to continue holding or sell the stock, but you will no longer be able to buy more of this stock.

I had a quick look at the list movers and as expected, it’s:

  • AIM stocks not in the AIM 100
  • FTSE stocks not in the FTSE-350
  • US stocks not in the MSCI Prime Market

This change didn’t affect me directly as there are no ETFs on the list, but it will impact a lot of users.

Freetrade ETFs 2020

But now Freetrade has made their statement on the separation of ETFs, albeit disguised as the news that many more ETFs are coming to the platform.

The originally announced split was:

  • Free Account = ETFs from iShares and Vanguard
  • Plus Account = Free ETFs, plus all the other UK ETFs that Freetrade offer

This meant that 28 ETFs would be disappearing from the Free account.

If you hold one of these ETFs and decide not to become a Plus member, you will be able to continue holding or sell the product, but you will no longer be able to buy more
shares.

We’re going to make sure that everyone holding one of these ETFs has plenty of early warning before they are moved to Plus.

The announcement led to a row on the Freetrade bulletin board, largely around an Invesco ETF that tracks the Nasdaq index – the replacement ETF costs around £500 a share.

  • I thought that the use of fractional shares would solve that problem, but apparently, that feature is only available on US stocks.

In any case, a few days later, Freetrade announced a new split:

  • Free Account = ETFs from iShares and Vanguard and Invesco
  • Plus Account = Free ETFs, plus all the other UK ETFs that Freetrade offer

This is not a big change – as far as I can see, the Nasdaq ETF was the only pre-existing one from Invesco.

A quick tour

Let’s start by looking at the ETFs that are leaving.

Moving to Plus

The main areas of concern (which I have emboldened) are:

  • Thematics (particularly tech)
  • China
  • ESG/SRI
  • Factors (particularly dividends)

So what’s left?

  • I’ve simplified the following tables to remove duplicate funds which are distributing or hedged in favour of non-hedged accumulating funds.

First bonds (which I am unlikely to use myself):

Freetrade Bonds

Plenty to choose from there.

Now the trend-following portfolio:

Freetrade Trend 1 Oct 2020

Freetrade Trend 2 Oct 2020

That also looks pretty good.

And there are now quite a few factor funds:

Freetrade Factors

And some ESG funds:

Freetrade ESG

Conclusions
  1. Trading 212 still has the edge over Freetrade because of its free ISA and zero FX charges.
  2. But since I won’t put more than £85K with either at the moment, I will use both.
  3. The benefits of the new ETFs outweigh the inconvenience of the few ETFs being moved over to the Plus account.
  4. I will use Freetrade for Factor ETF and ESG exposure, as well as ETF trend-following.
  5. I will use T212 for US stocks and UK stock factors (Stockopedia ranking portfolios).

Until next time.

Mike Rawson

Mike is the owner of 7 Circles, and a private investor living in London. He has been managing his own money for 35 years, with some success.

Article credit to: https://the7circles.uk/freetrade-2020-etfs/

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