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Low-cost index trackers that will save you money

This is our September 2020 update of the cheapest index trackers for British investors. If you’ve checked out this page before then know the main action this time is in the gold, UK gilts, total global bond, developed world, and emerging market equity categories.

Also, I’ve chucked out the UK value and global value categories and replaced them with dividend income picks instead. Sometimes you just have to go with the flow.

ETFs continue to drive down costs. There’s a few categories now where the lead ETF is half as cheap as its nearest rival, or has forced competitors to slash their costs, too.

Amundi has put serious pressure on the developed world and UK mid cap categories by choosing cheaper Solactive indexes rather than the big-name FTSE and MSCI alternatives.

Invesco has forced the pace in the short and intermediate gilt categories, and new entrants have livened up the total global bond category – no doubt anticipating yield-hungry investors sniffing around for any alternative to negative interest rates!

Lower 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 cheapest 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. We don’t include platform exclusive funds – they’re generally not a good deal overall.

UK large cap equity

Cheapest

Next best

The L&G ETF has a socially responsible investing (SRI) [10] remit.

UK mid cap equity

Cheapest

Next best

UK small cap equity

There are no good tracker options in the UK small cap [11] asset class for DIY investors – the iShares ETF is more of an expensive FTSE 250 tracker. The rest are active funds and shown as a selection of what’s available rather than a comprehensive survey.

Cheapest

Next best

UK equity income

Cheapest

Next best

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

The L&G ETF has an SRI remit.

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

Socially responsible investing

Cheapest

Next best

The SRI (or ESG) options above are meant to enable you to build a complete SRI portfolio, as opposed to listing the top three or so funds with the lowest OCF from any old category.

Multi-factor

Cheapest

Next best

All factor based investing is effectively straying into active management territory – you hope that the 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 simplicity.

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

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 inflation-linked bonds hedged to £

Cheapest

Next best

All hedged back to Sterling, short and intermediate options. Royal London, ASI and Smith & Williamson funds are active.

UK corporate bonds

Cheapest

Next best

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 all that.

This piece on designing your own asset allocation [13] will help you construct your own portfolio. If you want a quick shortcut then you can do a lot worse than picking a fund-of-funds [14] instant portfolio solution.

We only update this list periodically. Quoted OCFs 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.