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Low cost index trackers that will save you money

This is our latest update on the best low cost index trackers now on the market. It replaces any previous versions. Note: We don’t include platform exclusive funds – they’re generally not a good deal overall. 

Low costs – that’s the name of the game for passive investors [1]. Performance is unpredictable and elusive, but costs are nailed on. They nibble away at your returns like a satanic mouse – harmless enough at first, until you realise all your cheese has gone.

As Morningstar puts it:

If there’s anything in the whole world of mutual funds that you can take to the bank, it’s that expense ratios help you make a better decision.

That’s why I try to leave no penny un-pinched when searching for cheap funds.

I presented my then top, low cost picks in the lazy portfolio post [2]. But it’s nice to have a choice.

So, for your ascetic delight and entertainment, I bring you: Britain’s cheapest index trackers and their next best alternatives.

High cost funds gobble returns [3]

As an avowed passive investor, I’m concentrating purely on index funds and Exchange Traded Funds [4](ETFs). That’s because they are the simplest cut-price vehicles available.

I’m also sticking to the broad market categories recommended in the lazy portfolios. They offer ample diversification at a low cost. I’m not into kinky stuff like short Brazilians.

My picks are based purely on price as measured by the Ongoing Charge Figure [5] (OCF), and any other upfront fund fees that may apply. There are other factors [6] to consider when buying a fund (like tracking error [7], liquidity, and size) so it’s always worth reading any documentation to make sure it fits your bill.

Identifying tickers or ISIN codes are given in brackets. If there are any other wrinkles worth mentioning, I’ll throw them in along the way.

Finally, if you’re looking for the cheapest place to buy and hold these funds then take a butcher’s at our online broker comparison table [8].

The UK’s best low cost index trackers

Right, let’s grab some bargains!

Note: Anything not labelled ETF or ETC will be an index fund. Codes are given for accumulation funds [9] variants where available.

Domestic large cap equity

Cheapest

Next best

Domestic mid cap equity

Cheapest

Next best

Domestic small cap equity

There are no good tracker options in the UK small cap [10] asset class for DIY investors. Of the funds listed below, the iShares ETF is more of an expensive FTSE 250 tracker, and the rest are active funds.

Cheapest

Next best

Domestic value equity

Most UK tracker options are only an approximation of this asset class:

Cheapest

Next best

Note: The 7IM fund takes the top spot because it’s the one UK tracker that explicitly follows a value methodology. The remainder are high-yielding funds, not true value funds. A high-yielding fund is a distant cousin of value and not always a pretty one at that. Pure value funds are available in the UK through Dimensional Fund Advisors [13], but only via an associated IFA who will charge you fees.

World equity

Cheapest

Next best

The HSBC index fund contains an emerging market component. The rest cover the developed world only.

World value equity

Cheapest

Next best

Note: Vanguard’s Global Value Factor is classified as an active fund because it does not follow an index. It does follow a low-cost, rules based approach however, which is why it makes the list. All factor based investing is effectively straying into active management territory – you hope that a subset of the market can outperform – the key is to choose products underpinned by sound financial theory, a verifiable set of rules and a commitment to low costs.

World small cap equity

Cheapest

Next best

International ex-UK equity

Cheapest

Next best

You can also pick ‘n’ mix using individual US, Europe ex-UK, Japan, and Pacific ex-Japan trackers.

Emerging markets equity

Cheapest

Domiciled in France – subject to withholding tax [14].

Next best

Socially responsible investing

Cheapest

Next best

Multi-factor

Cheapest

Next best

Property – UK

Cheapest

Next best

Property – global

Cheapest

Next best

Includes emerging markets exposure.

All-commodities

Cheapest

Next best

Gold

Cheapest

Next best

Gold trackers are Exchange Traded Commodities (ETCs).

UK Government bonds – intermediate duration

Cheapest

Next best

UK Government bonds – long

Cheapest

UK Government bonds – short

Cheapest

Next best

UK Government bonds – index-linked

Cheapest

Next best

International government bonds

Cheapest

Next best

International bonds hedged to £ (government and corporate)

Cheapest

Hedged back to Sterling.

Next best

Hedged back to Sterling.

Hedged back to Sterling.

International inflation-linked bonds hedged to £

Cheapest

Hedged back to Sterling.

Next best

Hedged back to Sterling.

UK Corporate bonds

Cheapest

Next best

Note: The iShares ETF doesn’t take top spot because it’s a specialist ultrashort bond tracker with a duration of a third of a year. Not for general use but could be handy for deaccumulators.

Concluding thoughts on low cost trackers

If you’re new to passive investing then it might seem like you now have a lot of decisions to make after reading that lot.

This piece on designing your own asset allocation [16] will help you construct your own portfolio. If you want a quick short-cut then you can do a lot worse than picking a fund-of-funds [17] instant portfolio solution.

We only update this post periodically. Please bear in mind the quoted OCFs may date as fund groups fight their turf wars by undercutting each other (hurrah). But this list should still prove an excellent starting point for your research.

And if anyone comes across any better index tracker options I’d love to hear about them in the comments below.

Take it steady,

The Accumulator

Note: Some comments below may refer to an older collection of low cost index trackers. Scroll down for the latest thoughts.