The tracker fund price war must end some day. After all you can’t charge less than zero for running a fund…
…or can you?
Perhaps the ultimate move by the giants such as Vanguard, Blackrock, and Fidelity is to pay us for the privilege of running our passive investments?
Maybe they’ll try to make it back by snaggling a chunk of the customers they seduce into expensive active options, and so trackers will be loss leaders like current accounts for High Street banks?
Well, whatever the long term strategy, the tracker fund fee bonfire has been great for UK investors.
When it comes to the major markets, our days of being the poorer investing relations of our bargain-boasting US cousins are rapidly coming to a close.
Blackrock’s rock bottom funds
Latest to slash the bill is Blackrock, which has just cut the charges on five of its big tracker funds by around 50% on average – effective 11 August.
Here are the five Blackrock tracker funds in question:
| Fund | Current OCF1 | New OCF | Fund size |
| BlackRock UK Equity Tracker Fund | 0.16% | 0.07% | £8,129m |
| BlackRock Continental European Equity Tracker Fund | 0.17% | 0.10% | £2,984m |
| BlackRock North American Equity Tracker Fund | 0.16% | 0.08% | £2,874m |
| BlackRock US Equity Tracker Fund | 0.16% | 0.08% | £800m |
| BlackRock 100 UK Equity Tracker Fund | 0.16% | 0.07% | £649m |
Source: Blackrock/Hargreaves Lansdown
As Monevator reader Bruce points out, that makes Blackrock cheaper to own than Vanguard’s previously table-topping UK tracker fund – and there’s no initial charge on the Blackrock product either.
The other four fund fees also look very competitive. But for now charges remain unchanged on the 12 other funds in Blackrock’s passive range.
Still, let’s not gripe. There is around £15bn of index funds represented in that table, and the tithe levied on it is about to get cut in half.
That should mean millions of pounds more in ordinary passive investor’s pockets.
It also means we’ll need to update our guide to the cheapest tracker funds. I’ll wait for the word from my co-blogger The Accumulator on that.
Where next for lower fees?
Adam Laird, head of passive investments at Hargreaves Lansdown sees the battle lines shifting elsewhere now prices have come down so far on the core products.
“There is still further ground to be gained in the passive price war, though the arms race in UK and US equities means that battles are likely to rage on new fronts, such as in corporate bonds and emerging markets,” Laird says.
“There are also some passive providers who are simply sitting in their bunkers and hoping no-one notices they are charging way above the going rate for their funds.”
See our guide to calculating the cost of switching to work out if it’s worth you emerging from your own passive slumber for a bit of judicious fund swapping.
- Class D [↩]
Interesting, will think about moving some funds out of Vanguard and into BlackRock for a bit of diversification
We could do with a bit more competition on the platform front also now that iWeb have put their up-front charge so much
I would like to see cheaper platforms too. Maybe Degiro could be a major player if they took on ISAs and SIPPs and joined the Financial Services Compensation Scheme.
Personally, I’m ever less convinced that absolute cheapness is the way to go with platforms. The difference between the best broker I use and the worst is night and day in terms of customer service, reliability of the platform, and my faith that they don’t just wheel all their paperwork around in a wheelbarrow.
Obviously this is not a call to sign up with a Nice But Dim wealth manager — I’m still talking competitive platforms, but not absolute cheapest.
In this I differ increasingly from my co-blogger The Accumulator, although to be fair he also says these ‘soft’ factors are so subjective and random that they’re difficult/impossible for us to control for to provide any sort of guidance via our table.
Platform charges can be very significant. Far more than the fund charges in some case.
Clearly easy to compare platform costs, it is what they are.
Seems surprising to me that some low cost platforms don’t really market their services, service levels, offer some guarantees, what they do and don’t do,…etc to get more business.
@hugh — Oh, certainly, I am just expressing a personal view and I’d urge everyone to do their research and decide what is best for them. In case you’ve not seen it, we have a periodically updated table comparing the major brokers:
http://monevator.com/compare-uk-cheapest-online-brokers/
@TI “I’m ever less convinced that absolute cheapness is the way to go with platforms.”
I am “Mr Picky”, and I carry no personal torch for iWeb, but in addition to having decisively “snuck” in at £26 before their starter climbed to £200, I am uber-impressed with them thus far. Their telephone customer service, expeditious correspondence and super-efficient trading and research are exemplary.
I agree about iWeb, having also snuck in before the price hike. My only gripe is they don’t offer a physical gold ETF which I’d like to have a bit of.
As a tracker investor, I’m also a low number of transactions one, just tweaking a few funds each year. So broker quality isn’t as important as price to me. I don’t mind HL getting £200 flat rate to look after my pension, and have an ETF with them because that’s free, but the other stuff is with I-web because their funds are free.
I can see a bit of future bed and breakfasting going on between Blackrock/Vanguard and Fidelity over the next few years to diffuse capital gains tax, as the 30 days out of market doesn’t apply if the funds are different, even if their goals are the same. The diversity of broker and fund company reduces the exposure to fraud too.
There are some permanently free funds, Avanza Zero (SE0001718388) or SEB Euroland gratis (LU0791548901) comes to mind. I think they are available to non-swedish nationals as well. The upside is that there are no platform-fees and the downside is that you have to invest in SEK. This will likely incur forex-charges, but what do I know ?
Yes, I can see that low transaction tracker investors have far less reason to be concerned about more qualitative aspects of broker evaluation. If I were such an investor with a cheapest-class broker I’d print out all my transaction statements and file them away, print out and store any sort of monthly reports or tax statements, or anything like that from the company, and triple check it’s applying the correct tax treatment to ISA-ed and SIPP-ed holdings and so forth.
Fully endorse the comments about broker/fund provider diversification, of course.
@Uffe — Curious, I’ve never heard of these. Will point our passive specialist towards your comments, cheers!
Vanguard have scrapped their 10bps upfront levy today…
http://citywire.co.uk/new-model-adviser/news/vanguard-scraps-upfront-charge-on-lifestrategy-range/a830041?re=35299&ea=358161&utm_source=BulkEmail_NMA_Daily_PM&utm_medium=BulkEmail_NMA_Daily_PM&utm_campaign=BulkEmail_NMA_Daily_PM
@Tobeman, perhaps they were worried about what affect the Accumulator’s update to the “guide to the cheapest tracker funds” article would have. 😉
@Tobeman@Jonny
Verily, the pen is mightier than the sword!
Being a basis point or two cheaper doesn’t matter if tracking difference is worse. I recommend checking that before jumping ship. Vanguard tends to be very tough to beat when I’ve thrown in that factor. No hard and fast rules, of course, and subject to change.
Re: cheapo brokers and customer service. I’ve experienced a fair few now and have rarely had a problem. Then again my needs are simple and I’m about as active as a koala after a ten-course lunch. Customer service would be far more important if I was as active as TI or my affairs were complicated.
BlackRock is presumably able to make its funds extra cheap by stock lending . Don’t you think we have to take the risk of that into account?
It looks like the Blackrock funds also have a buy/sell spread which some of the other funds don’t have. On the continental europe fund this is 5%. Clearly the effect of this depends on how long you hold them for – but it would take a long time to recover this difference if you are only saving 0.03% a year.
It’s still not exactly a bad business model
BlackRock UK Equity Tracker Fund 0.07% of £8,129m
That is still a healthy chunk of change every year for a computer algorithm.
There is still a lot of room for competition!
@Stefan — Well, about £5.5 million a year. I doubt it makes money, all in. Maybe scrapes by because so much of the cost is defrayed by the Blackrock machine.
Ever so slightly off topic here: Is there a central website or resource where one can find out the platforms/brokers from which a particular fund is available?
Most of the main fund research portals (Morningstar, et al) have fund information for research purposes, but no information on which brokers/platforms they are available from.
@Dominic — That 5% spread is a red herring. It might be a holdover from the bad old days. If you’re investing in a tracker fund via an online supermarket, you will never have paid it I expect and you sure wouldn’t now.
I’m seeing the bid-offer spread on BlackRock funds on Charles Stanley Direct be about 0.4%.
@tobeman. The scrapping of the 0.1% upfront charge by Vanguard isn’t necessarily a good thing for long-term buy and hold investors. The money raised by the charge was paid back to the fund and had the effect of penalising short-term traders over long-term investors (or at least making the short-termists bear there own costs). Personally I wonder why they have scrapped the charge. Perhaps they reckoned that it was misunderstood and put people off investing in the funds? Perhaps they just calculated that with £2 billion in the funds they had critical mass and that the costs incurred by short-term trading were no longer significant. If any one with knowledge of the industry knows the answer I would be interested to hear.
Blackrock’s spreads vary from fund to fund. Normally the lowest is on the US / North America funds at around 0.05% and the highest is on the corporate bond tracker at about 0.75%. The UK fund is usually around 0.55%. I can’t say for sure, but this indicates that the spread reflects dealing costs & taxes associated with the underlying assets.
These spreads are normally fairly consistent over time. They tend to increase slightly when markets are more volatile, but only by a few basis points. Anything higher may be due to bid and ask prices getting out of sync, thus reflecting market movements on top of the underlying spread. Or as The Investor points out, people may be confusing spreads and initial charges.
I’ve always been put off Blackrock trackers due to the Bid/Ask spreads which I assume effectively act as an initial charge, but maybe I’m misunderstanding things.
I would be grateful if someone could confirm my understanding of the following data is correct – there seem to be wide differences in the spreads between Class D and Class H shares?
The data is taken from the funds which I believe are available on the fidelity.co.uk platform. I double-checked the prices with those on the Blackrock website.
As far as I can tell from the Fidelity website, where I have listed a Class H share below, the Class D share is closed for new investment on that platform.
BlackRock UK Equity Tracker Class H Acc. Bid: 1.017 Offer: 1.075 Spread: 5.40%
BlackRock Continental European Equity Tracker H Acc. Bid: 1.064 Offer: 1.119 Spread: 4.92%
BlackRock North American Equity Tracker Fund Class H Acc. Bid: 1.111 Offer: 1.168 Spread: 4.88%
BlackRock US Equity Tracker Fund Class D Acc. Bid: 1.642 Offer: 1.643 Spread: 0.06%
Am I understanding this correctly?
@Paul S,
I presume you are looking for a SIPP’ble or ISA’ble physical gold fund with Iweb?
They offer the Ishares physical gold ETC.
https://halifaxiweb.digitallook.com/security.cgi?username=&ac=&csi=2556643&record_search=1&search_phrase=physical
Unfortunately its dollar denominated. The GBP denominated fund is only available outside the tax shelter. I called to try and find the reason why and basically they didn’t know. Hope this helps.
@ Passive Investor
I’m definitely not in the biz, but had always got the impression that the dilution levy would go once the funds reached critical mass. In any case, I welcome it, I doubt that many day traders are attempting to make their fortunes using VLS 😉
@bob – thank you so much for your reply on the Gold/iWeb question. Apologies for the very late reply! I only just saw it. I had kind of assumed I’d have to open an account with a different provider to hold some SGLN, but I’ll give iWeb a call to see if I can hold it with them albeit outside the ISA wrapper. Their online dealing system doesn’t seem to recognise either IGLN or SGLN. Thanks again.