DIY Investor Magazine
/
September 2016
34
Low-cost tracker funds have become increasingly
popular with investors wishing to preserve as much
as possible of their investment returns writes Tabitha
Haysom
Hargreaves Lansdown, which manages more than
£60bn on behalf of retail investors, is to feature 13
tracker funds on its ‘Wealth 150 Plus’ list for the first
time after it saw the proportion of its investors choosing
‘passive investments’ double between 2011 and 2016.
Passive funds, which track and seek to equal the
performance of an index such as the FTSE 100 rather
than beat it — are considerably cheaper than those that
are actively managed; they have attracted increasing
numbers of investors in recent years that have
recognised that keeping costs as low as possible is one
of the keys to a successful investment strategy.
There has also been a large increase in the variety
and type of tracker funds available, delivering low cost
access to pretty much every sector and territory around
the world; awareness of, and education in the use of
ETFs has been crucial.
Hargreaves Lansdown head of research, Mark Dampier
said ‘We expect a continued polarisation of the UK
funds market, with monies flowing into high quality
active funds at one end of the spectrum and low cost
passives at the other,’
Investors under 40 are the most likely to hold ETFs,
whilst those over 60 are the least; however, three-
quarters of customers who held passive investments on
Hargreaves’ platform also held actively managed funds.
Recent interest rate cuts have fed through into savings
and investment products and with investment returns
under pressure, private investors are reluctant to absorb
the high fees charged by some actively managed
funds; there has also been a lot of dissatisfaction
among those that have invested in ‘closet trackers’ –
QUEST FOR INCOME:
INVESTORS ‘FLOCK’ TO PASSIVE INVESTMENTS
pseudo actively managed funds that fail to beat their
benchmark whilst charging handsomely.
According to Morningstar, the popularity of passive
investing has had an additional benefit in that
increasing demand has pushed fund charges down
across Europe.
Screening tools such as that at justETF allow funds to
be selected according to a range of criteria to ensure
that the investor gets the right product for their personal
objectives.
Appearing on a recommended list such as the Wealth
150 can potentially attract many millions of pounds of
retail investment and whilst fund managers cannot pay
to appear on the list, most are prepared to negotiate a
discount for investors using a given platform.
The three cheapest trackers that are featured — Legal
& General’s UK Index, UK 100 Index and US Index
— have a net ongoing charge of just 0.06% a year;
others include the BlackRock Corporate Bond Tracker
(net ongoing charge of 0.12%), BlackRock Japan
Equity Tracker (0.11%), and the HSBC FTSE 250 Index
(0.08%).
Holly Mackay, of Boring Money, said the inclusion of
passive funds was a ‘positive step’ because the best
buy list was ‘a hugely influential funnel for DIY investors’
fund selections’. Since RDR funds can no longer
offer big rebates or commissions to brokers and now
investors can compare the performance and costs of
active and passive funds.
Hargreaves Lansdown’s decision comes hot on the
heels of an announcement by rival investment platform
Selftrade that it would shortly be launching a screening
and selector tool that allows a user to select ETFs that
deliver equivalent exposure and performance as an
actively managed fund – unit trust or OEIC – but with
lower charges.
KEEPING COSTS AS LOW AS POSSIBLE IS ONE OF THE
KEYS TO A SUCCESSFUL INVESTMENT STRATEGY
WITH INVESTMENT RETURNS UNDER PRESSURE,
PRIVATE INVESTORS ARE RELUCTANT TO ABSORB
HIGH FEES
