Tracker fund charges fall yet again – but beware the large catch on ‘low-cost’ funds
Vanguard, undercut by Fidelity, has become the latest tracker fund firm to cut charges 
Over the past three years an enormous £30bn of British savings has flooded into tracker funds
Photo: Getty Images
Vanguard, the pioneer of low-cost tracker funds, has cut charges on 25 of its funds after being undercut by rival Fidelity in May.
These are funds that aim to mirror the returns from a stock market index or other asset and are typically far cheaper than funds where a manager is employed to pick the right shares.
The move has closed the price gap, but in the majority of cases Fidelity’s funds remains slightly cheaper.
On average Vanguard has cut its charges by 0.1pc, worth £10 a year on a £10,000 fund holding.
Notable moves incude the Vanguard FTSE UK All Share Index charge being cut from 0.15pc to 0.08pc, its global tracker will now charge 0.15pc, whereas previously the fee was 0.3pc, while the emerging market tracker will cost 0.2pc, down from 0.4pc.
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The one exception is the Vanguard global tracker, which is priced at 0.15pc, whereas Fidelity charges 0.18pc.
The Vanguard ETF funds, a different type of tracker, will also have lower charges.
The Vanguard S&P 500 ETF will charge 0.07pc a year, down from 0.09pc previously. This makes it slightly cheaper than the Fidelity US tracker fund for investors that buy the Vanguard ETF.
Vanguard has also cut costs on its LifeStrategy fund range, from 0.29pc to 0.24pc. These funds are baskets of different trackers, run by a computer. Each holds a different proportion of shares, ranging from 20pc-100pc, with the remainder in bonds and cash.
Tom Rampulla, a managing director at Vanguard, said: “Existing investors will automatically benefit from the new charges, as they always do when we lower the cost of our funds. These fee reductions are business as usual for Vanguard.”
Investors should also note that Fidelity investors were required to sell their old funds to buy into the new versions of the funds to take advantage of the lower prices, as the Agencieshighlighted at the time.
The cheapest tracker funds
Source: Morningstar
Watch out for expensive tracker funds
Tracker or “passive” funds replicate a stock market index, such as the FTSE All Share, and so are cheaper to run than rival “actively managed” funds whose managers select and oversee stocks.
Yet some trackers take over 1pc a year in charges, or £100 on £10,000, a rate comparable with actively managed portfolios.
One of the most expensive tracker funds is the £2.6bn Virgin UK Index tracker, which charges 1pc a year.
And the sting in the tail depending on the way you buy…
The charges on the funds are one thing but investors also need to consider the direct costs that are now applied by fund supermarkets and brokers.
As Justin Modray of Candid Financial Advice points out, Vanguard funds must be bought on one of these investment platform, unless you have the minimum £100,000 to buy direct.
Because most trackers are so cheap, the cost of the platform – which can vary wildly – is more significant. Mr Modray said: “In the case of the Vanguard FTSE UK Equity Index fund, annual platform costs could end up being more than five times more expensive than the fund itself.”
Assuming a £10,000 Isa invested in the Vanguard FTSE UK Equity Index fund costing 0.08pc a year, the total annual costs via popular platforms would be as follows:
iWeb £8 (no annual platform fee)
Charles Stanley Direct £33 (includes 0.25% platform fee)
Bestinvest £48 (includes 0.40% platform fee)
Hargreaves Lansdown £53 (includes 0.45% platform fee)
Chelsea Financial £68 (includes 0.60% platform/broker fee)
He added that for large sums of money, fixed fee platforms such as Interactive Investor and Alliance Trust Savings usually become far more cost effective than those charging percentage fees.
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