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Question on TERs for tracker funds
Santiago1_2
Posts: 62 Forumite
I was going through the IMA's database of index tracker unit trust. When sorting the funds by TER, some that come near the top (i.e. the ones with the lowest TERs) are a series of HSBC funds with TERs ranging between 0.27 and 0.29%. However, these appear to have an annual charge between 0.5 and 1%. How can they achieve such a low TER with such a 'considerable' annual charge?
There are also a few more funds at the top of the table (Henderson UK Equity Tracker Trust, L&G A&L UK 100 Index Tracker, Royal London UK All Share Tracker Trust) with an annual charge between 1 and 1.2% and a TER of zero; as well as the Scottish Mutual UK All-Share Index with a zero annual charger and a zero TER (but hefty initial charge).
Any idea how the above is possible? I must be missing something. Any advice welcome
There are also a few more funds at the top of the table (Henderson UK Equity Tracker Trust, L&G A&L UK 100 Index Tracker, Royal London UK All Share Tracker Trust) with an annual charge between 1 and 1.2% and a TER of zero; as well as the Scottish Mutual UK All-Share Index with a zero annual charger and a zero TER (but hefty initial charge).
Any idea how the above is possible? I must be missing something. Any advice welcome
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Comments
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Are you looking at the right version of the fund? There are often multiple versions of the same fund to cover different distribution channels. HSBC trackers are 0.25% if you go for the retail UT version.When sorting the funds by TER, some that come near the top (i.e. the ones with the lowest TERs) are a series of HSBC funds with TERs ranging between 0.27 and 0.29%. However, these appear to have an annual charge between 0.5 and 1%. How can they achieve such a low TER with such a 'considerable' annual charge?
Most trackers tend to sit around mid-table as far as performance goes. So, apart from the difference in charges, you also have the tracking error and its possible in some sectors that they are not tracking the same benchmark.Any idea how the above is possible? I must be missing something. Any advice welcome
For example, in your list you have all share trackers and FTSE 100 trackers. The Henderson UK Equity tracker has a 1% amc but has outperformed the HSBC 100 tracker (with a 0.25% amc) since launch.
18-4-2000 to 01-04-2010
Sector average 36.08%
Henderson 29.90%
HSBC 19.86%
Take a look at the Blackrock CIF trackers. They are generally better on the tracking errors and have 0.2% amc. Most havent been running as long (2004/5) but look at the following:
19-05-2005 to 01-04-2010
Blackrock CIF UK equity tracker 28.02%
Henderson 23.39%
HSBC 21.72%I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.0 -
This information is from the IMA Internet site (here: http://www.investmentuk.org/investors/find_fund/list.asp?membername=&IMASector=&MinLumpSum=&MinMthlySaving=&TrackerFund=1&srt=fitzrovia&cmdList=Submit - hope this works, seems to be very slow at times).
By looking at this can you conclusively say that the charges for the Henderson UK Tracker fund are lower than the HSBC All Share fund? Although I understand your answer about distribution channels, I still fail to understand how an annual charge of X% can lead to a TER <X%. Surely the TER takes into account the AMC?
Two more questions?
- Is there a website that readily provides tracking errors for tracker funds?
- Would the Blackrock funds be equally cheap to the HSBC funds for a self-select ISA or SIPP through a cheap retail platform such as H-L?
Many thanks
EDIT: Not sure if I am doing this correctly, but from the H-L website, the following details can be put together (hope this shows OK):
Cumulative performance
Investment 3 months 6 months 1 year 3 years 5 years
HSBC FTSE All Share Idx A Acc 7.06% 13.33% 52.96% -0.78% 38.37%
Fidelity Moneybuilder UK Index 7.01% 13.33% 53.14% -1.44% 37.67%
L&G UK Index R Acc 6.93% 13.16% 52.87% -0.72% 38.39%
Since the HSBC has the lowest charges on the H-L platform (HSBC TER: 0.27, no initial charge, Fidelity TER: 0.27 but also 0.5% charge when held in ISA or SIPP, L&G TER: 0.55 no initial charge), is it correct that the HSBC fund would appear to be the 'obvious' choice?
Naturally, if data for periods longer than 10 years were available, making a judgement would be more accurate. Am I talking porkies?0 -
This information is from the IMA Internet site (here: http://www.investmentuk.org/investor...cmdList=Submit - hope this works, seems to be very slow at times).
By looking at this can you conclusively say that the charges for the Henderson UK Tracker fund are lower than the HSBC All Share fund? Although I understand your answer about distribution channels, I still fail to understand how an annual charge of X% can lead to a TER <X%. Surely the TER takes into account the AMC?
I think there are quite a few data errors on that site leading it to misreporting information.- Is there a website that readily provides tracking errors for tracker funds?
Personally I use financial expresss analytics. They offer a cut down version for consumers free of charge called Trustnet. You could take a look there.- Would the Blackrock funds be equally cheap to the HSBC funds for a self-select ISA or SIPP through a cheap retail platform such as H-L?
I cant really speak for the DIY platforms as I dont use them but there is absolutely no reason why they would cost more unless the platform isnt getting a backhander from the fund house. i.e. with some fund houses, they pay the platform to market their funds. (which is why you should often disregard marketing from platforms promoting certain funds). A full SIPP shouldnt charge any more. A fund supermarket based SIPP may do.I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.0 -
Yes the HSBC trackers are the cheapest that I've found on H-L.
IMA might just be showing out of date information on AMCs, as HSBC reduced their retail fees in the last year.0 -
You seem to be getting muddled about trackers again and not taking into account that until 6 months ago, as already pointed out to you several times before, HSBC were paying trail commision to IFAs and so charging around 1% AMC for their trackers. Therefore you should only compare the period with the current AMC of 0.25% and not the period with the higher AMC.For example, in your list you have all share trackers and FTSE 100 trackers. The Henderson UK Equity tracker has a 1% amc but has outperformed the HSBC 100 tracker (with a 0.25% amc) since launch.
Fund Name, Old/New AMC %, Old/New TER %, TER Change
HSBC FTSE 100 Index, 1.00/0.25, 1.14/0.27, -0.87%
HSBC FTSE 250 Index, 0.75/0.25, 0.89/0.27, -0.62%
HSBC FTSE All Share Index, 0.50/0.25, 0.64/0.27, -0.37%
HSBC American Index, 1.00/0.25, 1.16/0.28, -0.88%
HSBC European Index 1.00/0.25 1.20/0.32 -0.88%
HSBC Japan Index 0.50/0.25 0.68/0.29 -0.39%
HSBC Pacific Index 0.75/0.25 0.99/0.37 -0.62%
The fund managers will give the target tracking error in the fund details but you'd be better comparing the actual performance on a chart at somewhere like H-L. There won't be a huge difference between trackers with similar TERs, unless of course the TER was changed at some point.Is there a website that readily provides tracking errors for tracker funds?
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ou seem to be getting muddled about trackers again and not taking into account that until 6 months ago, as already pointed out to you several times before, HSBC were paying trail commision to IFAs and so charging around 1% AMC for their trackers. Therefore you should only compare the period with the current AMC of 0.25% and not the period with the higher AMC.
No muddling in my information.
Yes, HSBC had a higher AMC until last year but it still underperforms.
Last 3 months (so covers the period when they charged less)
Blackrock CIF UK equity tracker7.18%
Henderson UK Equity Tracker 7.07%
HSBC FTSE all share tracker 7.06
So, despite the HSBC (0.25%) having lower charges than the Henderson (1%), it still comes out worse.
You seem to be getting muddled about trackers again and not taking into account that its not just charges you need to consider.I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.0 -
The Henderson fund has only returned 6.11% according to morningstar http://www.morningstar.co.uk/uk/snapshot/snapshot.aspx?tab=1&id=F0GBR06KHB&lang=en-GB
The Blackrock fund is a unit trust with an additional bid/offer spread of 0.65% http://www.bestinvest.co.uk/investment-research/fund-research/fact-sheet/bruet/blackrock-uk-equity-tracker/overview
Neither are widely available or marketed (or seem to have info on their companies websites) so are perhaps not fair to use as comparisons. Especially as simply having a different pricing time could have a bigger effect than 10bps.0 -
Thats if you buy it through them. Remember every retailer will have it's own charge. I dont look at DIY platforms but I know the advice ones have no initial charge on them.The Blackrock fund is a unit trust with an additional bid/offer spread of 0.65% http://www.bestinvest.co.uk/investme...acker/overview
If the platforms you are looking at don't have it or charge extra for it then that is a limitation of that platform. You then have to decide if that is the right platform or not. Sometimes you have to compromise somewhere.I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.0 -
Just to clarify something, the performance figures take into account the deducted fees, right? Therefore, irrespective of what the charges are, one should be looking for the fund(s) with the lowest tracking error? I am confused by funds with lower charges but worse performance...0
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Unfortunately, there's always muddling in your information. I don't suppose you're any worse than a lot of other IFAs but while no one expects you to be an analyst you should at least have some idea of how to compare funds.No muddling in my information.
You were earlier making the comparison, according to you, over the period 18-4-2000 to 01-04-2010. The AMCs/TERs for the HSBC funds were changed in September 2009 as you should know because you've been told here several times.
The whole point of looking at past perfomance is to make an estimate of future performance. There's therefore no point making comparisons over periods when the fee structure was completely different unless you make adjustments for the change in fees. This has been pointed out to you several times and yet you still do it. Repeating misleading information just wastes everyone's time.0
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