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Low-cost index funds and ETFs that will save you money

This is our updated list of low-cost index funds and ETFs that’s maintained to help UK investors smash the cost of their investments.

Scroll down and you’ll find the cheapest index trackers available in the UK from reputable fund providers. These funds can form the building blocks of a competitive, diversified portfolio that encapsulates Warren Buffett’s dictum: 

“Price is what you pay. Value is what you get.”

Crushing charges is a core component of sound investing. Because every pound you save in fees is a pound that snowballs over the years and speeds you towards your financial goals.

Our piece on management fees [1] explains how even small savings add up to a big difference.

The growing recognition of the importance of investment fees has driven explosive growth in low-cost index funds and Exchange Traded Funds [2](ETFs) over the past 15 years.

These two types of index tracker are the best value investment vehicles available and the right choice for passive investors [3].

Low-cost index funds and ETFs – the Total Cost of Ownership

Our cheapest tracker fund list is divided into the key sub-asset classes you may wish to invest in.

The picks per asset class are ranked purely by cost.

We previously used the Ongoing Charge Figure [4] (OCF) to order the list. This is the best known fee measure which all funds must publicly disclose. 

But we’re now switching to a Total Cost of Ownership (TCO) model. The TCO is the sum of a fund’s transaction costs [5] and its OCF.

Transaction costs are the fees and taxes investment vehicles inevitably incur when trading their underlying assets.

Transaction costs are not unique to index funds and ETFs. Plain, broad-market index trackers actually generate low trading fees in comparison to more active and specialised funds. 

That said, now transaction costs are freely available we can see that the average TCO is quite a bit higher than the average OCF. 

Total cost of ownership is about twice as high for even the low cost index funds and ETFs that comprise our UK large equity picks. 

Global property index trackers and small cap equity cost a quarter or a third as much again by TCO. 

But highly efficient markets like global equities are barely perturbed by transaction costs. 

Now that we’re able to fold transaction costs into fund charges (thanks to financial data provider Morningstar) the only slice of the fee pie missing is the bid-offer spread [6]

This shouldn’t be a significant cost for passive investors anyway, but Hargreaves Lansdown publish an estimated spread for investments where this is a factor. 

Cheap index trackers and transaction costs – more detail

Transaction costs may well fluctuate more than OCFs from year to year, especially if there’s excessive turnover in the fund’s index.  

Fund providers have various methods for managing transaction costs including when and how they trade.

They may also employ revenue generating techniques such as securities lending to offset transaction costs.

The rules and composition of the tracker fund’s chosen index may also help it trade less than rivals. 

Your view on securities lending and index selection are one among a range of other factors [7] to consider when buying a low-cost index fund. It’s always worth reading any documentation to make sure a given fund fits your bill.

Some index trackers register negative transaction costs but I’ve disregarded that from the TCO calculations below. That’s because negative transaction costs may not be sustainable over the long-term. 

Using our index trackers UK list

You can precisely identify the fund you’re after by using the ISIN codes or ETF tickers we provide in brackets. (This piece helps explain fund names [8].)

We’ve given the code for the accumulation fund [9], GBP-priced version where available. Income distributing versions are usually offered too.

This piece explains the ins and outs of accumulation vs income funds [10]

Right, let’s go grab some bargains!

UK large cap equity

Cheapest

Next best

The L&G ETF has an ESG remit.

UK mid cap equity

Cheapest

Next best

The Amundi index tracker is streets ahead of its rivals due to Morningstar’s report of zero transaction costs. We’ve requested verification from Amundi. 

UK small cap equity

There are no good low-cost index funds available for the UK small cap [12] asset class. The iShares ETF listed below is more an expensive FTSE 250 tracker. Our other suggestions are active funds and are shown as a selection of what’s available rather than a comprehensive survey.

Cheapest

Next best

UK equity income

Cheapest

Next best

Global equity – developed world and emerging markets (All-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

The L&G ETF has an ESG remit. We’ve requested confirmation from Amundi that PRWU has zero transaction costs. 

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 income equity

Cheapest

Next best

The Vanguard fund is active but gives you a non-ETF option.

World small cap equity

Cheapest

Next best

Emerging markets equity

Cheapest

Next best

We’re awaiting confirmation from Amundi that PRAM has zero transaction costs. 

Multi-factor – Global

Cheapest

Next best

All factor investing [14] is effectively straying into active management territory. Essentially, you hope that your chosen subset of the market can outperform. The important thing is to choose products underpinned by sound financial theory, a verifiable set of rules, and a commitment to low costs.

Regional ETFs are available. But we’ve stuck to global multifactor products for broad diversification.

Property – UK

Cheapest

Next best

No index fund alternative.

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

Next best

UK Government bonds – short

Cheapest

Next best

UK Government bonds – index-linked

Cheapest

Next best

Total global bonds hedged to £ (government and corporate)

Cheapest

Next best

All hedged back to Sterling.

Global government bonds hedged to £

Cheapest

Next best

All hedged back to Sterling.

Global inflation-linked bonds hedged to £

Cheapest

Next best

All are short and intermediate options, hedged back to Sterling. Royal London and Sanlam funds are active.

UK corporate bonds

Cheapest

Next best

Final thoughts on low-cost index funds and ETFs

There’s often little to distinguish index trackers that are closely matched in price. However we have previously written a few pieces to help you resolve tie-breaker situations:

If you’re looking for the cheapest place to buy and hold these funds then take a look at our broker comparison [18] table.

Our article on designing your own asset allocation [19] will help you construct your own portfolio. If you want a quick shortcut, you can do a lot worse than checking out our best multi-asset fund [20] picks for an instant portfolio solution.

We update this list periodically. Quoted TCOs may date, as fund groups fight their turf wars by undercutting each other (hurrah!) but this article should still prove an excellent starting point for your research.

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.