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Vanguard’s cheap trackers and ETFs just got even cheaper

Vanguard is shaving a few more basis points off the cost of passive investing

Everyone likes a sale. So what’s better than news from Vanguard that some of our favourite cheap tracker funds and ETFs will now cost us even fewer pennies?

As detailed below, the passive investing behemoth has shaved a few more basis points off a range of its funds and ETFs, including the ultra-convenient LifeStrategy funds.

These lower ongoing charges are effective from 1 September, and apply whether you’re a new customer or an existing investor in one of these Vanguard products.

And that’s always great news. Fewer pennies to Vanguard means more money for you in retirement!

In the Vanguard

Now we’re not normally ones for reporting on the tawdry matters of day-to-day mercantile machinations here on Monevator.

Frankly, we haven’t got the resources to send The Accumulator scuttling about the eateries and watering holes of The City to fish for topical tidbits – and The Accumulator explicitly stated that he was only interested in scuttling about The City’s streets if it definitely did involve stopping by its eateries and watering holes. Frequently.

But hey, this is Vanguard, a company we salute so often we’ve been accused of being a front for its nefarious plans to make investing cheaper. (We’re not – but we’re very open to the odd non-editorially compromising advertising campaign, if any Vanguard marketing managers happen to be reading…)

When Vanguard – the trendsetter in cheapness – cuts prices, it matters.

The cost of passive investing in the UK is already low, but the ongoing price cuts prove that – just like in the US before us – the price war is not yet over.

What’s more, The Accumulator is still on his holidays and I’m struggling to finish a giant post about bookkeeping. And it’s summer. And Lower Charges From Vanguard is better than a dead donkey, right?

Now let’s just hope some of those pesky platform fees start to fall, too.

The following tables detail Vanguard’s new lower ongoing charges in full.

UK and Irish Domiciled Index Mutual Fund Range

Fund Name Former Ongoing Charge New Ongoing Charge
Vanguard FTSE U.K. Equity Index Fund 0.15% 0.08%
Vanguard FTSE U.K. Equity Income Index Fund 0.25% 0.22%
Vanguard FTSE U.K. All Share Index Unit Trust 0.15% 0.08%
Vanguard FTSE Developed World ex-U.K. Equity Index Fund 0.30% 0.15%
Vanguard FTSE Developed Europe ex-U.K. Equity Index Fund 0.25% 0.12%
Vanguard U.S. Equity Fund 0.20% 0.10%
Vanguard SRI Global Stock Fund 0.40% 0.35%
Vanguard Global Small-Cap Index Fund 0.40% 0.38%
Vanguard SRI European Stock Fund 0.35% 0.30%
Vanguard Emerging Markets Stock Index Fund 0.40% 0.27%
Vanguard Japan Stock Index Fund 0.30% 0.23%
Vanguard Pacific Ex-Japan Stock Index Fund 0.30% 0.23%
Vanguard U.K. Investment Grade Bond Index Fund 0.20% 0.15%
Vanguard U.K. Short Term  Inv. Grade Bond Index Fund 0.20% 0.15%
Vanguard Global Bond Index Fund 0.20% 0.15%
Vanguard Global Short-Term Bond Index Fund 0.20% 0.15%

 

Exchange Traded Fund Range

Fund Name Existing Ongoing Charge New Ongoing Charge
Vanguard S&P 500 UCITS ETF 0.09% 0.07%
Vanguard FTSE 100 UCITS ETF 0.10% 0.09%
Vanguard FTSE Developed Europe UCITS ETF 0.15% 0.12%
Vanguard FTSE Emerging Markets UCITS ETF 0.29% 0.25%

 

LifeStrategy Fund Range

Fund Name Existing Ongoing Charge New Ongoing Charge
Vanguard LifeStrategy 20 % Equity Fund 0.29% 0.24%
Vanguard LifeStrategy 40 % Equity Fund 0.29% 0.24%
Vanguard LifeStrategy 60 % Equity Fund 0.29% 0.24%
Vanguard LifeStrategy 80 % Equity Fund 0.29% 0.24%
Vanguard LifeStrategy 100 % Equity Fund 0.29% 0.24%

 

Filed under: Passive investing

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{ 34 comments… add one and remember nothing here is personal advice }
  • 1 Neverland August 28, 2014, 9:39 am

    This is good news. Pre-price cut the Vanguard’s UK funds were notably expensive compared to their etfs

    The most important price drop to my eye is the Developed World ex-UK fund dropping from 0.3% to 0.15%

    Its still cheaper just to have the components of the rest of the world devloped markets, mainly the US, though

    I am the person who picks spare change up off the floor if I see it lying there though…

  • 2 woody085 August 28, 2014, 9:56 am

    Very welcome indeed.

    Just worked out that it costs 0.13% to hold the underlying funds of Lifestrategy 100% in the same proportions, or 0.14% to hold just UK Equity, Developed World ex-UK and Emerging Markets. A very cheap global tracker.

    The margin before the change was about 0.07% now it is 0.1%/0.11%. Perhaps they have left some margin to reduce the charges again in due course.

  • 3 woody085 August 28, 2014, 10:40 am

    To add to my comment it would currently cost 0.27% to hold UK Equity 25%, Developed World ex UK 67.2% and Emerging Markets 7.8% (same proportions as LS 100%). I concluded that I may as well hold Lifestrategy @ 0.29%.

    From September it will cost 0.14% (compared to 0.24% for LS) to hold these three funds in the same proportion, therefore depending upon your platform and dilution levy on the UK fund you may be better served using the underlying funds rather than LS.

    The difference for the LS funds including fixed interest will be less noticeable because they haven’t reduced fixed interest charges by the same proportions as equity funds.

  • 4 Neverland August 28, 2014, 11:46 am

    @Woody

    The developed world ex-UK is just under 50% US and the US equity fund/etf is the cheapest one they do

    The cheapest way to track developed large cap equity with vanguard was to buy the US, developed Europe and Japan etfs

    I think its still cheaper just now less cheaper

  • 5 Eoghan August 28, 2014, 12:33 pm

    Excellent news. Makes the SRI trackers a little more viable, but the emerging markets tracker is that bit more compelling compared to active funds now as well.

  • 6 Dylantherabbit August 28, 2014, 12:53 pm

    This is good news. That s&p etf is very cheap now, just £7 per £10000!

    I have a large holding of LS 60% and the drop will save me £45/year, not bad. Plus they have recently lowered the initial charge 0.1%.
    I think the LS funds are one of the best fire and forget investments 99% of peeps can make.

  • 7 Jonny August 28, 2014, 1:14 pm

    Great news. Especially as it’s only approx 7 months after they last dropped their prices.

    Go Vanguard!

  • 8 Liam August 28, 2014, 1:52 pm

    Hello, can I ask where you found this information. I’ve searched the vanguard website to no avail.

    Thank you

  • 9 Steve August 28, 2014, 2:47 pm

    This is good news, as I’m heavily invested in the developed world ex-UK tracker. I’d love to invest in some of their other funds, but I am trying to avoid having any more than 1/3 of my investments with a single fund manager just in case the unthinkable happens and (e.g.) Vanguard go under. Am I being sensibly prudent or ridiculously over-cautious here?

  • 10 dustofnations August 28, 2014, 3:05 pm

    Steve – This document from Vanguard may answer your queries: https://www.vanguard.co.uk/documents/portal/literature/investor-protection.pdf

  • 11 gadgetmind August 28, 2014, 3:43 pm

    Hmmm, doesn’t that make some of their trackers cheaper than the (roughly) equivalent ETFS?

    My main holding is VWRL and its 0.25% doesn’t look like a bargain now!

  • 12 The Investor August 28, 2014, 3:55 pm
  • 13 Aron August 28, 2014, 7:31 pm

    Glares about Blackrock… come on guys drop yours down a little bit.

  • 14 Neverland August 29, 2014, 10:22 am

    @Gadget

    VWRL was never a bargain when nearly half of it was invested in the S&P 500 which you could track for less than 0.1% even a couple of years ago

    You should really do the sums on a combination of US/Developed Europe/Japan etfs vs VWRL, it should still be cheaper because about 75% of your exposure is less than half the VWRL cost

    Also the big plus of ets is no time out of the market

  • 15 gadgetmind August 29, 2014, 11:41 am

    Yes, maybe I need to split my VWRL holding when I next rebalance. This is no big deal for our larger pots but a bit of a hassle for my wife’s sub £50k SIPP.

  • 16 woody085 August 29, 2014, 3:36 pm

    It looks like you can run the VWRL with individual ETF’s for about 0.12/0.13% (half the cost).

    The interesting thing for me is that there is very little difference now between the OEIC and ETF structure, maybe a couple of bps in favour of the ETF, but then you have spreads and trading costs to consider.

  • 17 Jon August 29, 2014, 4:34 pm

    Surely they will reduce the fees on VWRL, otherwise there will be a stampede out of VWRL. Hope so, its so much easier to rebalance a single ETF.

  • 18 Snowman August 29, 2014, 9:10 pm

    The OCF on the Vanguard UK equity tracker has been 0.15%pa, but the tracking difference of this fund relative to the FTSE all share total return index (TRI) has been a steady 0.07%pa. That is it tracks the FTSE all share index closer than its OCF would make you think it possibly could.

    With a 0.07%pa reduction in the OCF from 1st September, this would suggest the Vanguard UK equity tracker will now track the FTSE all share index TRI with no tracking difference at all!!!

    Of course that ignores the 0.4% one off dilution levy and platform fees.

    Compare this with say the HSBC all share tracker C class. This has an OCF of 0.17%pa but I calculate that this fund lags the FTSE all share TRI by 0.31%pa (based on a logarithmic least squares regression analysis of the tracking error compared to a customised 12pm FTSE all share TRI index). Quite a difference of 0.31%pa (although adjustment for there being no dilution levy is required for a fair comparison)

    The tracking difference for the Fidelity FTSE all share tracker has been commented on before and is significantly worse than the HSBC tracker.

    My calculations have looked at the Fidelity, L&G, HSBC, BlackRock and SWIP FTSE all share trackers and none tracks to within 0.20%pa of the FTSE all share index.

    The Vanguard UK equity tracker is the best FTSE all share tracker fund by some margin from my calculations, if held for any length of time so the annualised affect of the dilution levy is minimal.

  • 19 grey gym sock August 30, 2014, 3:35 pm

    isn’t the main reason that vanguard may be able consistently to beat the index return minus the OCF that the fund gains revenue from securities lending (all of which is kept by the fund)? some trackers funds don’t do securities lending; others do, but the mangement company retains part of this revenue.

    i know vanguard price their funds at the market close, whereas many other funds price at 12pm, so i can see why you’d want to compare to “a customised 12pm FTSE all share TRI index”. how did you obtain such an index? (it sounds like you’ve put a *lot* of work into this.)

    whilst vanguard have the dilution levy, and some funds (e.g. blackrock’s) have a spread between the prices for creating and redeeming units, others (e.g. HSBC’s) are single-priced. i imagine that HSBC are adjusting the pricing basis so that it is higher when more units are being created than redeemed, and lower when more are being redeemed than created. if that’s correct, there should be a jitter effect in the daily pricing – some days, a bit higher than the index value would suggest; other days, a bit lower. if it’s incorrect, there would be no jitter, but long-term holders of the fund would suffer by paying part of the costs (mainly stamp duty) when short-term holders skip in and out of the fund. does your data show any “jitter” effect, or an incremental falling behind the index without jitter?

  • 20 gadgetmind August 30, 2014, 4:30 pm

    Yes, income from securities lending (minus fees, etc.) all goes into the fund. Vanguard are also very cautious, and very open, regards their lending.

    https://www.vanguard.co.uk/documents/inst/literature/securities-lending-still-no-free-lunch.pdf

  • 21 easydoesit August 30, 2014, 6:08 pm

    Given that Fidelity index funds tend to have greater tracking errors than some, what do others make of these numbers from Trustnet? (Not sure how they’ll format but you’ll get the idea.)
    1m 3m 6m 1y 3y 5y
    Vanguard FTSE Developed World ex UK Equity Index Acc Fund +2.6 +3.3 +7.0 +12.4 +56.9 +73.8
    FTSE Developed Ex UK Index +2.6 +3.4 +7.3 +13.1 +57.3 +78.9
    http://www.trustnet.com/Factsheets/Factsheet.aspx?fundCode=FPFC9&univ=O&pagetype=performance
    Fidelity Index World W Fund +2.1 +3.4 +6.3 +12.2 n/a n/a
    MSCI WORLD +2.4 +3.1 +6.5 +12.2 +54.6 +74.3
    http://www.trustnet.com/Factsheets/Factsheet.aspx?fundCode=I1F0J&univ=O&typeCode=FKEXA&pagetype=performance

    Figures for 1 year only for the Fidelity fund so not much to get hold of, but though the Vanguard fund has produced the higher return, the Fidelity seems to have tracked its index more closely.

    Does anyone know the primary differences between those two indices?

  • 22 easydoesit August 30, 2014, 8:04 pm

    PS. Other than one being ex-UK of course.

  • 23 William August 31, 2014, 7:04 pm

    If only Vanguard could offer their own NISA/SIPP wrappers we could all leave our platform providers who now want to take more in fees than the fund operators. Vanguard truly operate a transparent business model and pass savings on to their clients which shows the benefit of their mutual structure.

  • 24 Snowman September 1, 2014, 10:02 am

    @grey gym sock

    1. When I last analysed some long reports I noticed the addition to returns from securities lendings for FTSE all share trackers was very small perhaps 0.01% to 0.02%pa at most (couldn’t find any figures in Vanguard accounts). So I don’t think securities lending explains it, but I’m open to thoughts on that. The HSBC 250 tracker makes a bit more than this presumably as 250 shares are slightly less liquid and desirable to lend.

    2. You can use data from the FT.com markets data section to estimate a 12 noon index, use downloads and then choose equities. You can download FTSE all share info at end of trading (they call it under its old name FTSE actuaries share indices) and from the FTSE hourly indices, UK series. Approximately FTAS TR at midday = FTAS TR at close x FTAS exc dividends at midday/FTAS exc dividends at close

    3. Through the regression analysis you can look at the jitter you mention by comparing the fitted price against the actual price. There is surprisingly little floating of the unit price going on with HSBC or Fidelity, but there is a lot of floating of the unit price with SWIP and M&G. I’ll have to post up some of the charts up that show the jitter at some point, they are very illuminating. I think HSBC describe their floating as semi-floating in their literature from memory.

  • 25 The Rhino September 3, 2014, 11:44 am

    Looking at the youinvest junior isa, if you were to build a portfolio of ETFs it looks like you would incur no ad valorem charge (of 0.2%) which you would be hit with if you went with funds. You would have to stump up £10 per trade though.

    This seems a good thing, but the potential down-side is that they produce dividends quarterly as opposed to an acc type fund which just rolls those back in.

    bearing in mind this is intended as a low maintenance min 20 year term investment, would it be better to take a 0.2% hit and get an acc type fund and not have to worry about reinvesting dividends or maybe go etf and just reinvest the dividends once a year at the same time you add new funds?

    bit confused – anyone that can offer any top tips gratefully received

  • 26 gadgetmind September 3, 2014, 1:05 pm

    I actually prefer to see dividends rolling in and I intend to reinvest them once per anum as part of rebalancing. This can be cheaper as you typically have fewer trades as you don’t have to do the “sell side” to the same extent.

    As for ETFs versus funds, I’m using ETFs purely because Best Invest maintained their fixed “custody fee” for existing customers so I don’t need to add on a percentage platform fee. This means my overall TER/OCF on the various pots is 0.3% – 0.4% despite me also having ITs, REITs, etc. in there.

  • 27 The Rhino September 3, 2014, 3:37 pm

    I wonder if those dividends are still within the ISA wrapper as such

    i.e. if i held an ETF within an ISA and it paid out £1000 in dividends, if I wanted to reinvest those dividends at a later date back into the ETF would that £1000 be considered part of my £4000 allowance for the tax year?

    Or could I reinvest those dividends and *still* add a further £4000?

    (note £4000 because its ‘junior’)

  • 28 gadgetmind September 3, 2014, 4:01 pm

    All income in ISA (or SIPP) wrappers remains within the wrapper. You can still put £4k in each tax year no matter what has happened inside the wrapper regards capital or dividends.

  • 29 grey gym sock September 3, 2014, 9:18 pm

    snowman, thanks for the further info. (i couldn’t find vanguard’s income from securities lending in annual report, either.)

    rhino, i have a SIPP with youinvest, which is in ETFs (+ ITs) for similar reasons. note that their £1.50 monthly dealing can be used for many ETFs; this can be used to mop up dividends, e.g. by buying more of something that’s fallen below its target weight in your portfolio – although it is “monthly”, you can disable it again after a single purchase.

  • 30 mike September 4, 2014, 12:43 pm

    If Vanguard charge a 0.4% dilution levy on the UK Ftse trackers would i incur this cost every time I bought a chunk in Charles Stanley? If so doesn’t that make it very expensive?

  • 31 The Rhino September 4, 2014, 1:03 pm

    @gadgetmind thanks for that – makes sense when you think about it

    @grey gym sock begs the question why anyone would pay £10 for a trade when it can be had for £1.50 in the way you describe..

  • 32 JohnEd September 5, 2014, 2:35 pm

    Isn’t the Vanguard dilution levy paid into the Fund? Therefore, whilst it is a real cost to consider for short-term traders, I think it actually benefits long-term investors (all those dilution levy payments made by short term investors trading in and out of the fund) relative to the way other providers cover these costs. So, for a long term investor, the Vanguard 0.4% is good news in the sense that you only pay it once; with other providers you keep sharing in the dilution costs imposed by other investors year after year. The underlying dilution / stamp duty cost is unavoidable for any fund; it is just a question of who pays (and how often and how hidden).

  • 33 MoneyPower100 September 6, 2014, 9:49 pm

    I would be beneficial if Vanguard UK offered ISAs & SIPPs and undercut the other platform operators.

    Vanguard’s USA operations appear to be excellent.

  • 34 newbie October 3, 2014, 6:57 am

    On iWeb and TD Direct, the charges for LS are still 0.29%

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