Stop the press! Vanguard index funds are soon to be available for a monthly dealing fee of £1.50 thanks to a chunky price drop by Alliance Trust.
Previously Alliance Trust charged £5 per regular trade. It still charges £12.50 for a single trade.
The £1.50 rate only applies to new cash that you inject via an online direct debit. The minimum contribution is £50 and once you set up the monthly trade, you must pay in for at least two consecutive months.
The website implies this service is currently available, although I’ve been told by Alliance Trust that the launch has been delayed until Friday.
Regardless, this move is great news for passive investors because Vanguard funds are generally the cheapest trackers you can buy in the UK.
Now they are far more accessible to UK investors who make moderate monthly contributions. The cost of the £1.50 fee to your investment can be reduced down to a manageable 0.5% if you can drip-feed in £300 per month.
I personally try to ensure dealing fees never slice more than 0.5% off my investment, and the more you can dilute the impact the better, as flat-rate fees play havoc with small contributions.
Not fair
Vanguard trackers are not as widely available to DIY investors as other UK index funds, because most investment platforms don’t like the fact that Vanguard won’t pay them commission fees.
The limited competition makes getting a good deal difficult for small investors, so it’s worth knowing a few of the tricks of the trade.
The only way to buy Vanguard in the UK without paying dealing fees is to go through the Fair Investment Company.
Unfortunately the fairness doesn’t last long, as it levies an eye-watering 0.85% annual management charge – an unacceptable amount to any DIY investor, large or small.
Vanguard expands
Meanwhile, with inflation causing petrol pump prices to spin like cherries on a fruit machine, Vanguard has introduced two very topical new UK funds:
- UK Inflation Linked Gilt Index fund, TER 0.15%, initial charge 0.4%
- UK Long Duration Gilt Index fund, TER 0.15%, initial charge 0.15%
The first fund offers a measure of inflation-protection for the fixed income part of your portfolio by investing in UK index-linked gilts that pay out a higher coupon in the face of rising prices. Many passive investors hold 50% of their bond allocation as index-linkers, and Vanguard’s fund comes in cheaper than its rivals, if you’re prepared to buy and hold for several years.
The second fund offers exposure to UK government bonds with maturities of greater than 15 years. Longer-dated gilts are riskier than their short-dated counterparts as they’re more vulnerable to unexpected rises in inflation and interest rates. However, they are a good diversifier in the face of a stock market crash. In this scenario, money flees equity and seeks a safe haven in high-quality bonds with longer durations.
The Vanguard Long Duration Gilt fund is the first tracker to focus on this part of the gilt spectrum in the UK, and is another heartening improvement in the lot of British passive investors.
Useful information on these funds is still very scarce. You can tell that by a quick glance at the factsheets, which are really more sheets at this stage. As ever with new funds, it’s a good idea to give them a while to settle down before wading in.
Take it steady,
The Accumulator
Comments on this entry are closed.
I really want cheap access to the Vanguard funds so this sounds like great news. However I notice that Alliance Trust have introduced an annual charge for their ISA’s of £25.00 plus VAT including two “free” trades.
On my current platform there is no annual charge and I can also purchase shares / ETFs at £1.50. So, allowing £3.00 for my “free” trades the Vanguard costs have to be £27.00 per annum cheaper than the funds that I can access on my platform. For a £10,000 investment that means Vanguard’s costs must be at least 0.0027% cheaper for me to break even. (If I only had £5,000 invested I need a 0.0054% difference.) Obvious costs include TER, initial charges, spreads (on ETFs) and tracking error.
There is also the cost of selling funds (if one is not a “pure” passive investor) and Alliance Trust’s trange practice of charging £10.00 for refusing to do a BACs tranfer and insisting on sending you a cheque my mail.
All in all I think that I will take advantage of this offer, but I still feel like everyone else is getting rich from my investments!!
Are there any articles here on the best trading platforms for the UK market or is it too volatile for such an article to be much use? Or are the best pretty much all the same?
I was about to ask the same question Ben. I have used the Fidelity Platform via Cavendish online for the last 10 yrs or so and now wonder if its time to change given that I am now a committed passsive investor and suspect other platforms might offer more products and cheaper purchases. I guess iii and AT are up their with the best.
Hi, long time reader, first time poster – I love this website, keep up the good work please!
@Steve @Ben I can vouch for iii- it’s particularly good for passive investing as the share builder lets you buy shares for £1.50 on one of 4 designated days each month.
It’s £10 to sell, but if you build up your holding using the share builder over time, then it could bring your trading costs down significantly.
ISAs are free and there’s no inactivity fees.
However, I sometimes find it tough to find all the efts and trackers that I might want. Though I’m pretty willing to accept that this is just down to my poor searching skills 🙂
I’m currently using H-L with their vantage ISA product
No annual management fee, no charge to buy the index trackers i’m interested in and no exit fees.
I’m not interested in ETFs as even at 1.50 (seems to be the lowest charge going) I can’t justify the expense for the amounts i’m investing. So the cost of buying shares isn’t important to me
Are there other charges that I should be considering but have maybe missed?
I too am with H-L, and on the whole I am pretty satisfied with the service I get.
Since the beginning of this month Alliance have introduced annual charges for their ISA. This plus the points made by Simon does not make this platform particularly attractive, IMO; but if you want Vanguard you do not have a choice.
Vanguard is certainly cheaper than other index trackers, particularly for its tracker for the emerging markets where it’s TER is considerably lower than that of HSBC and L & G tracker.
Is there a website that compares tracking errors of different index trackers and prepares a league table:)? I don’t think that this information is easily available.
@Michael — Always nice when a long time reader chips in. Cheers!
@ Ben – I’m planning an article along those very lines. In the meantime: I use Alliance Trust (purely for Vanguard), iWeb (no charge on Fund ISA) and TD Waterhouse (no charge on Regular Investment ISA) for ETFs.
Depending on how you deal with dividends, iii is probably cleanest of all, as Michael says – no charge for its Self-Select ISA. That’s the broker I recommend for the Monevator Slow & Steady portfolio. However, if you’re paid a lot of dividends then TDW maybe the way to go.
Hargreaves-Lansdown do charge an annual management fee for some investments. They’re slick but you can pay over the odds for their service depending on what you buy. They charge an extra 0.5% (+VAT) on some index trackers and their trading fees are high.
Frankly, there are too many catches with H-L for my liking.
@ Michael – Two articles to help with your research:
http://monevator.com/2010/12/14/how-to-find-exchange-traded-funds/
http://monevator.com/2010/12/07/how-to-find-index-funds/
@ Alan – if there is such a website I’d love to know about it. I’ve never found anything that comes even close. Tracking error is very difficult – read nigh on impossible – to find comparable information on.
@ Simon – Agree on all counts. Caveats: you’ll avoid the annual charge if you previously opened an AT account before Feb 2, 2011. If not then hopefully the charge fades into insignificance when all that passive investing makes you rich! The £10 charge is for the withdrawal of cash rather than selling of funds (that’s even worse at £12.50 a throw). My take on that charge is it’s unsustainable in the internet age, so hopefully will be phased out before you ever have to sell up (assuming you’re an investment nipper still in your accumulation phase).
Worth noting that along with an ISA fee, Alliance Trust just announced an increase in their SIPP annual fee, from £75 to £125 +VAT. That’s a whopping 67% increase, pretty dispiriting overall.
Thanks for the pointers guys – I’ve been mulling over what to do with my stocks and shares ISA allocation for a while – (I haven’t ever used one yet and I’m thinking long term) – and this article and comments are helping me on my way.
@Simon – similarly I plan on investing £10,200 (2010/11), into Vanguard via an ISA at Alliance Trust this month (despite the annual charge, grrr)
I’m still mulling over whether to stay with AT or use iii to invest monthly (+£300) into an ISA (2011/2012) – as both it seems will cost me £1.50 a trade each month. Any thoughts on the matter…? Am erring towards iii to avoid all eggs in one basket scenario.
PS – have already applied for both and have been accepted and am happy with both in terms of service to date.
Hi Donna,
See this article for some pointers on broad-based index funds you can get from iii without paying any annual charges or trading costs at all: http://monevator.com/2011/01/06/passive-investing-model-portfolio/
Hi – great website, great articles. Much appreciated. I am looking to set up a regular, monthly contribution pension/SIPP. I am interested in something like the No Trading Fee portfolio (mainly HSBC tracker funds) and have looked at iii and H-L. It seems to that H-L just shades it, as
iii: say 10 funds @ £1.50 = 15.00 / month. Plus £18.75 (& VAT) quarterly charge = £270 p.a. (with 5 funds, = £180 p.a.)
H-L: no transactions charges (? is this true?) plus 0.5% of fund capped at £200
I would welcome your thoughts to see if I have missed something.
Many thanks, Andrew
Thanks for the link Accumulator – will have a go at passive investing for 2011 and avoid charges going forward. I am keen on Vanguard, however, so will put up with the charges for a lump sum investment for the short term.
Andrew – I didn’t think that H-L charged 0.5% of fund for holding the HSBC index tracker funds in a SIPP. I’m under the impression that the only cost is that listed as TER – 0.27% in the case of the HSBC FTSE All Share Index Fund, but there is no H-L charge on top of this. Or have I got this wrong?
I’m looking at setting up a SIPP but perhaps with irregular contributions, as my self-employed income arrives at different times.I’m considering perhaps taking a SIPP with sippdeal as they do the vanguard funds now, and have no annual fee such as alliance trust do. Does anyone have experience of sippdeal?
@ Andrew – most brokers don’t charge transaction costs for OEICs or Unit Trusts. Instead, they receive a commission paid from the TER. The HSBC index funds are OEICs.
I believe Jan is right that the 0.5% H-L charge does not apply to the HSBC index funds. Though it does apply to other index funds they supply e.g. L&G’s gilt index trackers.
The iii £1.50 charge you refer to applies to shares, ETFs, no doubt investment trusts but not those HSBC index funds, which are OEICs.
Looking a bit more seriously at AT for a stocks and shares ISA so I can get some vanguard stuff
Am I right in thinking that drip feeding a monthly £300 in at 1.50 per trade to bring costs down to 0.5% implies you can only be buying one fund per month.
And vanguard attract a dealing fee because they don;t give out any commision (which is what makes it possible to get a bunch of other funds for ‘free’)?
Ben, you’re spot on. Other funds pay the commission out of higher TERs. Vanguard funds tend to work out quicker if you hold them long enough, though it’s pretty marginal even over 10 years.
“once you set up the monthly trade, you must pay in for at least two consecutive months.”
does anyone know how this works – i.e can you change the amount and/or target funds each month? or does it have to be the same for the two consecutive months?
I’m considering moving my portfolio from interactive investor to alliance trust, but I think it would only be worth it if I can use the low dealing rate to top-up/rebalance each year, but not paying in every month.
Hi Ric – I change my funds and amounts regularly. As memory serves you can do it willy-nilly as long as you hand over cash for 2 months in a row. You can always email Alliance Trust for absolute clarity. You can also do quarterly trades for £5.
Not sure if this has been mentioned before, but I believe Interactive Investor now has some Vanguard Funds available:
Emerging Markets, Global Small Cap, and American Index.
Sorry for the double post, but it seems the full range of Vanguard funds are available on Interactive Investor. Is this a recent development?
Hi Matthew — False alarm so far, it seems. See the comments here: http://monevator.com/hargreaves-lansdown-vanguard-funds/#comment-155277
Oh, that’s a shame 🙁 Thanks for the clarification!
Hi
I have a simple question from a simple investor. I invested in both of these Vanguard index linked gilts July 2011 and have seen a decent gain since. As I understand, these funds are linked to the UK RPI. My reasoning was that since UK inflation was going to be quite high from 2011 to mid 2012, they would be a ‘safe’ investment. Now the RPI rates are slowly coming down – so should I stop investing in these funds purely because of a lower RPI? Im sure theres more to it than the RPI alone, and I am hoping you can explain?
Many thanks
Simpleton
Hi, the reason you invest in index-linked gilts is to protect yourself from unexpected inflation. If inflation beats current market expectations then you’ll do better than if you were in conventional gilts. If it undershoots predictions then you’ll do a bit worse. But the point is, no one knows which way things will go. So I continue to hold a portion of my assets in index-linked assets even as RPI declines because if inflation takes off again (and there has been an awful lot of money-printing these last few years), I’ll have some protection.