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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 available to UK Investors. 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.

High cost funds gobble returns [2]

As a passive investor, I concentrate mostly on index funds and Exchange Traded Funds [3](ETFs). That’s because they are the simplest cut-price vehicles available. However, some asset classes aren’t well served by index trackers, so I’m happy to use low cost active funds to fill the breach.

My picks are based purely on price as measured by the Ongoing Charge Figure [4] (OCF). There are other factors [5] to consider when buying a fund (like tracking error [6], 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 [7].

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 [8] variants where available.

UK large cap equity

Cheapest

Next best

UK mid cap equity

Cheapest

Next best

UK 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

UK value equity

Cheapest

Next best

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, but only via an associated IFA who will charge you fees.

World equity – developed world and emerging markets (total world)

Cheapest

Next best

Vanguard Lifestrategy and Fidelity Allocator invest in other index trackers. Fidelity invests in REITs and small caps.

World equity – developed world only

Cheapest

Next best

World ex-UK equity

Cheapest

Next best

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

World value equity

Cheapest

Next best

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

Emerging markets equity

Cheapest

Next best

Socially responsible investing

Cheapest

Next best

Multi-factor

Cheapest

Next best

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.

Property – UK

Cheapest

Next best

Property – global

Cheapest

Next best

The SPDR ETF includes emerging markets exposure.

All-commodities

Cheapest

Next best

Gold

Cheapest

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 bonds hedged to £ (government and corporate)

Cheapest

Next best

All hedged back to Sterling.

International inflation-linked bonds hedged to £

Cheapest

Next best

All hedged back to Sterling. Royal London and Smith & Williamson funds are active.

UK Corporate bonds

Cheapest

Next best

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 [12] 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 [13] 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.