12th March 2013
Adviser and broker BestInvest is warning investors that many tracker funds are charging a lot more than their rivals.
The firm has identified funds with more than £100m of assets that have relatively high charges. Tracker funds are those that generally follow the indices such as the FTSE 100 rather than spotting trends, sectors and shares as active fund managers do. Active therefore generally costs more but if you have opted for a tracker, it should cost significantly less.
The charging situation is arguably historic. At one stage, charges of one per cent or more were pretty much the norm for trackers, but as more fund firms have launched trackers and a whole new range passive vehicles called exchange traded funds have established themselves, these funds are looking increasingly out of date or at least out of kilter with the prices charged by many of their peers.
When they launched with some fanfare in the late 1990s or early 2000s, some did with big marketing pushes which claimed active fund managers charged too much. The largest fund, highlighted by the research fits this bill, the £2.4 billion Virgin UK Index Tracking, charging 1 per cent. It used to boost about this in newspaper advertising and tube adverts.
Some of the funds were sold through banks which also tend to have higher charges. It is therefore no surprise that the steepest charge is levied on the £366 million Halifax UK FTSE All Share Index Tracker C, with a 1.5 per cent annual cost.
Trade paper Money Marketing considers the full list here.
All things being equal, the best idea is to see what you are paying and at the very least consider switching to a cheaper alternative, though taking issues such as penalties or any tax charges into account. You also need to consider whether you are moving to a similar fund, because some passive strategies actually buy the shares in the index they are following others replicate it in other ways. However, a fund that tracks the FTSE 100 really shouldn’t be very different from another. There is very little that is reassuringly expensive if one fund costs more than another that does exactly the same thing.
But Best Invest suggests you shouldn’t be paying more than a 0.4 per cent charge. That sounds sensible.