≡ Menu

The family BlackRock and the mysterious case of the elusive TERs

If you find the range of index funds aimed at UK investors about as appealing as snacks on a train’s buffet trolley, then take a look at the BlackRock family of trackers known as the BlackRock Collective Investment Funds (CIF).

Nestling within this series of index-hugging Unit Trusts is:

  • A highly competitive emerging markets fund.

The best picks from this Blackrock range offer a useful alternative to the tasty TER troika of Vanguard, HSBC, and L&G. They also offer the prospect of fee-dodging salvation for some Hargreaves Lansdown investors.

Until their adoption by the major fund platforms, coherent information on the BlackRock CIF index funds was shrouded in financial fog.

And there are still plenty of wisps obscuring the view even now.

Glimpses of ludicrously cheap TERs on MorningStar dissolve into the ether on the discount broker sites, while BlackRock’s homepage reveals nary a trace of these fabled funds… Just what exactly is going on?

Tracking down the BlackRock trackers

The family BlackRock

Here’s the full rundown of index funds available from the BlackRock CIF range:

Fund name Class A TER Class D TER
Continental European Equity Tracker 0.58% 0.23%
Corporate Bond 1-10 Year 0.47% 0.22%
Corporate Bond Tracker 0.47% 0.22%
Emerging Markets Equity Tracker 0.6% 0.24%
Global Property Securities Equity Tracker 0.61% 0.24%
Japan Equity Tracker 0.57% 0.23%
North American Equity Tracker 0.57% 0.21%
Overseas Corporate Bond Tracker 0.52% 0.22%
Overseas Government Bond Tracker 0.52% 0.22%
Pacific ex Japan Equity Tracker 0.59% 0.24%
UK Equity Tracker 0.57% 0.21%
UK Gilts All Stocks Tracker 0.46% 0.21%

Note: Stated TERs for the Class A funds can vary by platform.

The funds appear in two guises: Class A and D.

Obviously – given the lower TERs – Class D is the good stuff, but sadly it’s reserved for institutional investors. i.e. Pension fund type financial behemoths. However, it’s possible to join in the party, if you know where to look. More below.

Financial fleas like you and me are normally offered Class A. As ever in the world of finance, the less you can afford something, the more you have to pay for it.

Other points of intrigue:

  • Published TERs are all over the place for the Class A funds. I’ve never seen such swings – anything up to 0.28% – and almost every platform plus MorningStar and BlackRock seems to have its own ‘exclusive’ number. The funds are relatively new and the TERs are still settling down, so ask for the latest information before you invest.
  • You can shave 0.2% off the Class A TERs – see the Cavendish Online trick below.
  • There’s an initial charge of 5%. But there’s no need to pay it as any decent online platform will discount it to zero.
  • Only the UK gilts fund distributes income. The other funds offer accumulation units only.
  • As the funds are newish, the performance data is short-term and fund sizes are pretty small. That’s hardly an issue that’s unique to BlackRock but it’s worth checking during your research.
  • ISA eligibility is patchy – it depends on the platform.

Let’s make this interesting… the Cavendish Online trick

Yes, sorry. Where this does really get interesting (and you have to take your thrills where you can in this game) is:

Discount brokers Cavendish Online will rebate 100% of their trail commission on all BlackRock funds!

I’ve not seen any platform rebate trail commission on index funds before, and it means you can knock 0.2% off the TER of every Class A BlackRock fund you buy through Cavendish.

If you react to trading fees like Dracula to sunlight, then the rebate makes the Class A emerging market fund and the corporate bond funds well worth a second look.

The other funds are either unavailable through Cavendish, or else can all be beaten by Britain’s cheapest tracker alternatives – at least for now.

It’s also worth checking if your preferred platform is refunding any BlackRock commission along the Cavendish model.

Let’s make this interesting… emerging markets

The BlackRock Emerging Market Equity Tracker Fund is a good option for investors who can’t afford Vanguard or ETF trading fees.

Its published TER of 0.6% trounces its nearest competitor – the 0.99% of the L&G Global Emerging Markets Index Fund – even when you take into account the spread.

It can even beat the Vanguard Emerging Markets Stock Index Fund, if you buy through Cavendish Online and pay an effective TER of 0.4%.

Research is crucial with this fund, however. Its benchmark is the FTSE All World Emerging index (same as the L&G fund) but BlackRock’s interim report shows that the fund has a 20% allocation to North America.

What gives?

As it turns out, the North American allocation is chock full of emerging market companies that are listed in the US.

Performance-wise it’s not wildly out of sync with its L&G equivalent, but you need to be comfortable with what you’re getting into.

Let’s make this interesting… global property

The BlackRock Global Property Securities Equity Tracker is the only property index fund available in the UK.

It invests in developed world commercial property, with a massive bias towards the US.

The TER of 0.61% plus spread compares well with the equivalent iShares ETF – IWDP – (on which you’ll incur trading fees) although HSBC have recently launched a global property ETF – HPRD – with a TER of 0.4%.

Cavendish doesn’t list the property tracker online (a fair few brokers seem to skip this one) but it’s worth a phone call. The fund is new enough that websites may well still be playing catch up with the latest developments.

Class D – out there somewhere?

The holy grail when it comes to BlackRock index funds would be to somehow masquerade as a pension fund and access those juicy Class D TERs.

Many platforms do list the Class D funds but the £250,000 minimum investment is a hurdle I personally find hard to clear.

However, as reader Gadgetmind reveals in the comments below, most Class D BlackRock funds can be bought by mere mortals, if you’re prepared to use the Skandia fund supermarket.

Skandia normally requires investors to use an IFA go-between, but a few discount brokers such as Clubfinance enable you to  go it alone.

Here’s the SP:

  • Initial charge: 0
  • Annual charge: £68.50
  • Minimum investment: £2500 lump sum or £99 monthly contribution.

Clubfinance take trail commission from BlackRock but so does every other platform, so don’t worry about that.

Using the Skandia/discount broker combo, the Class D TERs become super-competitive, but only if your portfolio and contributions are large enough to reduce the annual charge and bid-offer spreads to atoms.

Even then the differences are marginal in comparison to the equivalent HSBC and Vanguard funds. Again, it’s the property and emerging market funds where the gain is most impressive.

Want to know more?

BlackRock jealously guards its CIF Investment Fund secrets on its intermediaries’ site. Admit to being an enthusiastic amateur and you’ll never find what ye seek:

One day the financial services industry will work out how to make things easy for UK investors and empower more people to take charge of their finances. In the meantime, I’m hanging up my deerstalker for another week but hopefully I’ve clued you in to some useful index tracker ideas.

Take it steady,

The Accumulator

Receive my articles for free in your inbox. Type your email and press submit:

{ 18 comments… add one }
  • 1 gadgetmind January 24, 2012, 10:32 am

    The class Ds are available on Skandia, but I think you need to go via and IFA or maybe Club Finance or Commshare, but I know there will be other platform and annual charges. I think this is £68.50 for Skandia per year and Club Finance charge 0.1% pa in trail.

    This hassle is why I’ve now ditched the trio of IFA, Skandia, and SIPPCentre, and am now using Vanguard trackers etc. on BestInvest.

  • 2 Martin January 24, 2012, 11:50 am

    I think the paucity of index funds in the UK, and the apparent reluctance of fund management companies to publicize those that are available, is due to the fact that they don’t want retail investors abandoning their (very profitable) active funds.

    I came across this problem recently with Standard Life. Just before Christmas they announced that the Vanguard range of funds were being made available on their pension platform. Great news I thought (I have a pension with them). My euphoria was soon deflated when I looked at the TERs they were intending to charge – 1.0125% (and 1.215% for the emerging market fund). What’s more, you won’t find any of this information on Standard Life’s retail web site – you have to go digging around on the site for IFAs.

    Martin

  • 3 Ben January 24, 2012, 11:54 am

    I had a look at these in the initial HL frenzy back in December and briefly thought they could be a solution to the platform fee issue

    I didn’t like the details either though and my conclusion was to leave well alone until they become simpler and more transparent

    The massive spread was the nail in the coffin for me.

    In the end I moved to Vanguard Lifetsyle to maximise passivity and take the smallest platform fee hit that I can

    Still seeing ridiculous levels of volatility but more recently its been on the up and up, almost everythings back in the Black with US up something crazy like 10% in a few weeks

  • 4 saveonarola January 25, 2012, 12:44 pm

    After a long period of research here and elsewhere, I went for Vanguard LifeStrategy with Bestinvest too. For simplicity, good sense (automatic rebalancing and – the clincher for me – automatic non-UK regional adjustment by market cap), value and good tracking, I don’t think you can beat it. BI is a touch more expensive than HL for my two LifeStrategy funds, but I don’t like HL’s propensity to waste money on marketing and I’m not convinced that their per-fund charging structure is their final word.

    By the way, a couple of months ago I asked BI whether they would add the BlackRock Global Property Securities Equity Tracker to their Select platform and I’m still waiting for a response. This isn’t a criticism of BI – their service has been excellent and they’re probably waiting for an answer from BlackRock or whoever manages their platform – just thought I’d mention it. HL does at least offer that BlackRock fund (over the phone), but it wasn’t enough to make up for all the bumph they’ve been sending me since I emailed them once a few months ago!

  • 5 MCF January 25, 2012, 1:30 pm

    Just as a note, many Investment management companys will review applications for the institutional class if the amount is less then the minimum stated. But I wouldnt bother applying if it was anything over 20% less then the minimum.

    Why would companies actively promote tracker funds? They do not provide the income that pays the bonus!

  • 6 The Accumulator January 29, 2012, 2:47 pm

    Thanks Gadgetmind, I’ve since been able to confirm the minimum investible amounts with Clubfinance and it is doable. Go through those guys and you can ditch the IFA.

    @ saveonarola – BlackRock index funds have massively extended their availability over the last 18-months – although the property fund has been a laggard – so it wouldn’t surprise me if BI get there in the end.

  • 7 Michal January 29, 2012, 11:14 pm

    >The BlackRock Emerging Market Equity Tracker Fund is a good option >for investors who can’t afford Vanguard or ETF trading fees.

    I don’t understand this.
    Alliance Trust offers Vanguard Index Funds (so what is the problem with affordability).
    On the other hand – buying Vanguard through Alliance Trust costs £12.50.
    Is this normal? I think I’ve read you mention that buying index funds doesn’t incur trading fee (as opposed to ETF). But in case of Alliance Trust it does.

  • 8 The Accumulator January 30, 2012, 9:21 pm

    Hi Michal,
    The problem is that if that £12.50 dealing fee (or £1.50 through monthly scheme) is costing you 1% and upwards of your contribution then that’s too high a price to pay. Throw in AT’s annual management charge and many small investors are better off with the slightly more expensive HSBC index funds sans trading fees and platform AMC.

    Most platforms don’t charge trading fees on Unit Trusts / OEICs (index funds are vehicles of this type) because such funds pay out trail commission from the TER that you pay to own the fund.

    However, Vanguard don’t pay trail commission because they believe it’s not a transparent charge that investors understand. So platforms use other mechanisms to make Vanguard pay. Alliance Trust and Sippdeal charge a trading fee. Bestinvest charge a custody fee, HL charge a monthly platform fee.

    All of which can make Britain’s cheapest trackers cost ineffective for investors with small portfolios / drip-feeding in small amounts.

  • 9 Michal January 30, 2012, 10:31 pm

    The Accumulator,
    That clears it up. Thanks.

  • 10 Squirrel February 4, 2012, 4:30 pm

    Hi Accumulator (& Investor),

    After many years of rather haphazard investment efforts I’m currently in the process of deciding on a considered investment strategy, to be based on the principals of index tracking. To this end, I’ve found the Monevator website (and also Tim Hale’s book) invaluable: many thanks for your sterling work!

    One specific observation regarding the article above is that Cavendish Online isn’t the only platform that will rebate (100% of) trail commission on index funds: Alliance Trust also do this. As detailed in AT’s fund list (http://www.alliancetrustsavings.co.uk/pdf/list-of-funds.pdf), AT rebates trail commission on many of the funds it carries, including the L&G and HSBC tracker range (although there are no rebates for the Vanguard range, as Vanguard don’t pay trail commission to AT).

    So for example, the L&G UK Index Trust has an AMC of 0.4% but AT rebate 0.3% of this, meaning that the net AMC for the tracker if held through AT is 0.1%.

    Interestingly, at face value this suggests that L&G’s UK index fund held through AT is a lower cost option than Vanguard’s UK index fund (AMC 0.15%). However, this comparison is flawed because Vanguard’s AMC is an estimate of all-in cost, whereas L&G’s fund has a TER greater than the AMC, and additional costs over and above the TER to boot, as per standard industry practice.

    Comparing the other Vanguard equity index funds to HSBC and L&G equivalents held through AT reveals that Vanguard remain the cheapest option in each of their respective categories. However, AT’s rebates are definitely a factor to be considered when weighing up different platforms and fund options and go some way to off-setting their yuckie platform charges and dealing fees!

  • 11 The Accumulator February 4, 2012, 4:52 pm

    Thanks Squirrel. I’ve looked into this a few times before and have yet to discover a scenario in which AT’s rebates make any index funds cheaper. They don’t rebate HSBC either (even though they do pay trail commission) and they don’t carry the BlackRock index funds. Though if you’re into actively managed funds AT may be worth a second look…

  • 12 Boo2 February 8, 2012, 6:06 pm

    Okay, first I would like to that you for having an outstanding site. I’ve been coming here for years but I don’t think I’ve posted before.

    I have been wanting to redo my portfolio for a while, mostly for simplicities sake. I have 30 different investments and would really like 1 per asset type/geographical area. I also wanted to take the opportunity to change my asset allocation. I have had an aggressive allocation for quite a while but as I may want to by a house over the next few years I thought it would be a good idea to shorten my time horizon and reduce my portfolio risk and volatility.

    Ideally I wanted the slow and steady passive portfolio (i.e the global roll your own approach) but with more diverse bonds. That would allow me to check my asset allocation and profit/loss at a glance (with 30 holdings across 2 brokers, 3 accounts and all sorts of different instruments this can take me quite a while)

    Since Hargreaves Lansdown (HL) had added platform fees for index trackers I thought I would skip those. My smallest holding would be for £2300 and the platform fee would be too expensive.

    So I started looking at ETFs. £10 flat fee with HL. 0.5% capped at £45 annual fee. Almost a good a selection as I would like. Close enough. Unfortunately I couldn’t find an ETF with GBP as the base currency or currency hedge for Global Gvt Bond, Global Ex-UK equity or Emerging Market. Exposing a good chunk of my portfolio to USD currency risk. Not ideal at all. I had a brief look at hedging myself but it looks to be fairly expensive and I would need to have a fairly large position or use a lot of leverage.

    I’m now looking at a hybrid approach with GBP based ETFs supplemented with the Vanguard Global EX-UK, Blackrock Emerging Market Tracker and managed funds for Commodities and Global Bonds. This would keep my overall costs fairly low but as im paying for a platform fee anyway I might as well just use a Vanguard Lifestrategy fund. But what becomes of my hobby then!?

    Overall I’m fairly disappointed in HL. Especially as the first I heard about the index tracker fees was on this website. I only transferred my ISA to them a year ago and id rather not transfer again.

    I mostly came on here to rant and share my experience for others but I am very open to suggestions!
    B

  • 13 The Accumulator February 19, 2012, 6:51 pm

    Hi Boo2, sorry missed this one. Glad you like the site and congrats on the decluttering – it really sounds like you enjoy your hobby to the full. HL will charge you 0.5% + VAT (capped @ £45) for ETFs too.

    I would definitely shift platform rather than try to work a system around HL’s charges but I hear what you’re saying about wanting to settle. One possibility would be to use a portfolio tracker like Morningstar’s to keep on top of funds spread across more than one broker.

  • 14 Brian April 13, 2013, 2:57 pm

    This is fantastically useful, thanks for posting it!

  • 15 Bob Smith March 3, 2014, 10:28 pm

    Interesting that you can now get the Class D through Alliance Trust where it has a 0.2% TER. Although you have to allow for the AT transaction charges, it works for me.

    It seems to track pretty closely against the benchmark when you look on Morningstar:
    http://www.morningstar.co.uk/uk/funds/snapshot/snapshot.aspx?id=F00000OJRZ

    The alternative is probably iShares FTSE EPRA/NAREIT Developed Markets Property Yield ETF (IWDP) but it’s a bit more costly.

  • 16 JAL March 18, 2014, 10:24 pm

    Cheap TERs seem to be available on HL now too, e.g.:

    – Global Property Secs. Eq. Tracker Class D 0.2% Net annual charge (plus 0.05% fund manager’s “other” expenses)
    – Emerging Markets Equity Tracker Class H 0.18% Net annual charge (plus 0.07% for those”other” expenses)

    I can’t see anything about them only being offered to institutional investors.. or am I missing something?

    PS – Apologies if everyone already knew this – I only discovered this magnificent Monevator site a few months ago and still playing catch up!

  • 17 The Accumulator March 19, 2014, 9:57 am

    Hi Jal, glad you’re enjoying the site. This article is largely out of date now and the Class D funds are fully available from a large range of brokers. The situation is much simpler these days but look out for the spread on BlackRock funds when you’re comparing them with rivals. You can get a feel for the spread by checking the prices on BlackRock’s site.

  • 18 JAL March 20, 2014, 10:32 am

    Cheers The Accumulator, I thought as much but just wanted to check. Thanks very much for confirming!

Leave a Comment