Got Professional Advice on Purchasing ETF's - Looking For Second Opinion

J

justme

Registered User
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Hi All,

You're probably sick to death of this so feel free to ignore it if you are. I posted here recently about my intent to invest some money in the markets. I was hesitant to invest in ETF's due to the harsh tax treatment associated with them. So my intention was to purchase one or two broad ranging investment trusts and maybe some Berk-B shares.

I have a broker that manages a portfolio for me also and I put my plan to him. I got a lot of useful info back, however, it's the part around the taxation of ETF's that I am double checking. Regarding the taxation of ETF's, this is what I received back

"Investment Trusts and US ETFs are CGT tax treated. No reason to avoid US ETFs. Outside of a pension structure, European ETFs have less favorable tax treatment....
To access US ETF's you will have to declare yourself a professional investor. Give me a call on that this afternoon or tomorrow."

Is that true? Is it as simple as starting an account with Interactive Brokers, declaring myself a professional investor, then I have my pick of US ETF's which are treated as CGT? Would you be confident doing that?

Just incase any one finds it interesting, I will include his opinion on buying F&C IT below
"In regards to your question, no I would not invest in this investment trust. I'm not a big fan of big broad diversified exposure right now because my belief is that those exposures have too much concentrated risk in areas of the markets that I would deem too expensive and risky at this time. If I were going to buy a diversified exposure right now, I would probably buy an MSCI World ex-US ETF or Investment Trust that was highly correlated to that. "
 
jpd said:
You will get as many opinions about F&C IT as people who answer - one of them will be spot on, but only in hindsight will it become clear which one
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I'm not really looking for an opinion on the F&C IT. It's more the tax treatment on the ETF's that I'm wondering about.
 
If you claim to be a professional investor when you are not, I suspect that there all sorts of caveats such as not being covered by retail customer protection legislation for a start
 
Hmm, your broker sounds like a bit of a spoofer to me.
justme said:
Is it as simple as starting an account with Interactive Brokers, declaring myself a professional investor, then I have my pick of US ETF's which are treated as CGT?
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Eh, no. You have to satisfy certain criteria before you can elect to be treated as a professional client.

Perhaps your broker means he can purchase US-domiciled ETFs on your behalf as a qualified fund manager (for which he will, naturally, charge you a fee).

Anyhow, the taxation of US-domiciled ETFs is far from clear-cut.

Previously, Revenue published guidance that made it clear that US-domiciled ETFs were subject to income tax/CGT. However, this guidance was subsequently withdrawn and this is now very much a grey area.
justme said:
I'm not a big fan of big broad diversified exposure right now because my belief is that those exposures have too much concentrated risk in areas of the markets that I would deem too expensive and risky at this time.
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Or to put it another way: "I think I can beat the global equity market by taking geographic, sectoral or stock specific bets".

Fair enough if that's his mandate. But he's exposing you to a lot of uncompensated risk.
justme said:
MSCI World ex-US ETF
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So, he wants to exclude 70% of developed market equities? That's a very big bet.
 

No he definitely means I should just declare myself as a professional broker. He explained it over the phone. Says it's a very simple process on IB which involves ticking a few boxes.

Sarenco said:
So, he wants to exclude 70% of developed market equities? That's a very big bet.
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Yes, he's very much of the value investing school of thought and he doesn't see much h in the S&P or American market at the moment.

To be fair, his performance has been decent so far. It's more so the advice over ETF's I'm considering. Seems like an easy way to access tax efficient ETF's and I'm wondering if there is validity to the claim.
 
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justme said:
It's more so the advice over ETF's I'm considering. Seems like an easy way to access tax efficient ETF's and I'm wondering if there is validity to the claim.
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Well, here’s a relatively recent discussion on the point -

Revenue publish updated note on ETFs

Revenue have published an update to Part 27-04-01 which concerns the criteria for establishing whether an investment if subject to the Exit Tax or not https://www.revenue.ie/en/tax-professionals/ebrief/2023/no-0812023.aspx Have to say it is as clear as mud to me :rolleyes:
www.askaboutmoney.com
 
Thanks, I'll have a read. I have a feeling ill be none the wiser afterwards !
 
Sarenco said:
So, he wants to exclude 70% of developed market equities? That's a very big bet.
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And the biggest companies in the world.

I wonder what qualifications he has to make the bet of excluding the world's largest economy?
The S&P500 returned 20% last year and averages 10% per annum over most prolonged periods. That is a very good return without taking overly large exposure to massive volatility.


There appears to me a number of advisors who are skirting around the PRIPPS legislation in the thought that they won't be audited. Fines can be up to €5,000,000 or 3% of total annual turnover. It's not a risk that I would take with my business.


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
This ex US thing came back to me this morning, so I decided to see how the MSCI World compares to MSCI ex US



Going back to February 1975, the MSCI has returned 7.90% per annum compared to 6.55%. If you had invested €10,000, you'd have €407,632 with US exposure compared to €220,658 without.

As you can see from the graph, the two lines really start to diverge in the last 10 years. Look at what you'd be leaving behind you from not having US exposure.
 
I posted a chart above of the extraordinary performance of the Japanese index during the 1970s and 80s versus s + p 500 because of Japanese technology and electronics companies, but look what happened after 1990 and the Japanese index still not back to its 1990 high. The US stock market similarly is driven by technology stocks. But crucially there has been little innovation in energy and food which is why despite all the innovation in telecommunications and IT we are still has heavily dependent on hydrocarbons and mining as ever before
 

Thanks for taking the time to show this. I'm aware historically, it's a no brainer to have the large cap US companies in your portfolio. However, it's mainly driven by tech now and fear I may have missed the boat at this point. I'm new to investing, but during my time in business in general, I'm always a person that looks for value. I think the tech stocks may be overvalued at this point and my instincts tell me there has to be a reset coming.

However, I'm not confident in that position at all! I'm still trying to decide and as the original post states, the whole reason I'm going to run this side experiment is to compare and contrast how I do on my own for a few years with something like Berk-B and JAM or maybe just an all world index, compared to his strategy.
 
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