Keep track of charges on your tracker funds

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range passive vehicles called exchange traded funds have established themselves, these funds are looking increasingly out of date or at least out of kilter with the prices charged by many of their peers.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.

11 thoughts on “Keep track of charges on your tracker funds”

  1. forbin says:

    I guess this is a case of was the old measure any good ?

    who gains from the new measure and will it be back dated ?

    and as the UK and USA are playing games with the GDP figures , can we really believe them any more – or they like a stick measure? yeah that other thing is smaller than the stick and oh, the other thing is bigger……meaning less comparative measure .

    Why can’t economists have a standardized measurement body ?

    got one for the kilo , metre and even yard………

    and whilst they at it include the 3 ( or 4) Laws of thermodynamics

    Forbin

    Popcorn comes in stnd bags like 350g or 500g , or sometime 10% smaller for the same low price…

    1. Anonymous says:

      Hi Forbin

      The new measure looks better than the past and yes as the year progresses it will also be applied to real GDP (June onwards). I think anybody interested in accuracy will approve of the changes and as to the gainers well as I pointed out there is more GDP to tax..

      Sadly there has always been interference. Some time ago I was looking for the income version of GDP (for newer readers there are 3 GDP measures) as it had proved useful in the US only to be told that Nigel Lawson had cut the publication to just the output one.

  2. dutch says:

    Any system of grading economic health that includes imputed rents is hardly what one might term,scientific.I long for the day we can start including imputed taxi fares to generate growth forever.

    1. Anonymous says:

      Hi Dutch

      Imputation to infinity and beyond?! As it happens today was the day that the ONS told us more about it planned changes to UK GDP calculations. I have discussed it before and suggested around 3-4% which is narrower than their 2.5% -5% of this morning.

      Oh and you may enjoy this addition.

      “Imputed contributions for funded defined benefit pension schemes” will nudge UK GDP a little higher.

      1. dutch says:

        That’s a beauty.

        Have you got a link for the ONS story please?

  3. Jan says:

    I suppose the change in GDP numbers reflects the change one would expect from a fast developing country where there are new industries eg film which a few years ago didn’t even exist. As a non-economist I hadn’t realised that we were never really comparing like with like; I understand that the more developed nations keep their figures more up to date by constant re-basing on at least a 3 year basis. Economics is therefore not an exact science but to reporters in the MSM it is; I suppose we should take all reported figures with a pinch of salt.
    I would hope that the IMF would be working towards all countries reporting their figures on the same basis so we can make meaningful comparisons.

    1. Anonymous says:

      International comparisons are hard, for example petrol and mc donalds burgers are cheaper in the USA. So economists sometimes use purchasing power parity comparisons, either way it is approximate at best.

      (Sorry Forbin – I don’t know about US popcorn prices)

    2. Anonymous says:

      Hi Jan

      As it happens it is the World Bank which is leading the current drive to comparability of GDP numbers. This is a good thing although as I have written before about my concerns and doubts about the new (double counting) measurement of research and development.

      As to your salt I think that you may need more than a pinch..

  4. Anonymous says:

    Hi Shaun
    This seems an extraordinary change, 89%! So it would appear that one has to be even more careful with GDP numbers than we thought before. After all how misleading were the previous series?

    1. Anonymous says:

      Hi KimJosephine

      Whilst the updating is welcome it does as you say pose more than a few questions about previous ones.

  5. Anonymous says:

    Hi Shaun,

    Tracking a murky corrupt economy with any measure is a horribly difficult task. The concept of bribes adding(?) to GDP is offensive, given the enormous damage they do to ordinary people.

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