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Question on TERs for tracker funds
Comments
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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...
The performance figures are normally the total return on a bid to bid basis (so not including any initial charge which most trackers don't have anyway). Different funds have slight differences due to the different methods used for tracking: full replication, synthetic tracking, etc.
So while it make sense to go with the one that seems to produce the best return remember that tracking errors will be variable from period to period while charges will be constant (or at least known).
Bear in mind too if you use H-L that they'll charge an extra 0.5% within an ISA for some funds, for others they won't. You might also want to consider the £50 cashback L&G offer through Quidco for new ISA accounts.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...
I would ignore tracking error for all practical purposes. Decide which index you want to track and then look for the fund with the lowest charges. It is as simple as that.
As soon as you start to look at tracking errors and fund performance you are in danger of getting it wrong by investing in a higher charging tracker on the basis of mis-interpreted performance statistics.
Trackers will appear to outperform relative to each other because of differences in when the units are priced (e.g.midday or at market close) and whether there are net buyers or sellers into the fund on the day it is priced, amongst other things but distinguishing if a tracker is in the longer term going to slightly outperform another is very difficult to do.
Ironically funds with higher tracking error could be marginally better then funds with a low tracking error. This is because funds that don’t precisely mirror the index through the investments they purchase don’t incur as much as in charges in constantly rebalancing their funds. Those rebalancing charges are additional to the TER. If the funds achieves +0.5% one year and -0.5% the next relative to an index then that isn’t really any different to a fund that is 0% and 0% over the 2 years. The greatest volatility is actually in how the index itself performs not whether the performace is slightly above or below the index in any one year.
In summary if going for a tracker keep it simple and go for the fund with the lowest charges.I came, I saw, I melted0 -
Rollinghome wrote: »
Bear in mind too if you use H-L that they'll charge an extra 0.5% within an ISA for some funds, for others they won't. You might also want to consider the £50 cashback L&G offer through Quidco for new ISA accounts.
Many thanks for this. A perhaps stupid question, when H-L charge this 0.5% (plus VAT, so I guess around 0.59%), should I simply add this to the TER indicated on the H-L website i.e. a fund with a 0.50% TER should be assumed to charge 1.09% when bought through H-L?0 -
I think the TER published at H-L include the added charge. You can check that by comparing the TER quoted at H-L with the TER published in the fund prospectus.Many thanks for this. A perhaps stupid question, when H-L charge this 0.5% (plus VAT, so I guess around 0.59%), should I simply add this to the TER indicated on the H-L website i.e. a fund with a 0.50% TER should be assumed to charge 1.09% when bought through H-L?0 -
I believe not. The footnote at the H-L website says:
¹ Additional annual charge of 0.5% + VAT is applied to this fund when held in the Vantage ISA and SIPP (capped at £200 + VAT per account). This additional charge is not accounted for in the Total Expense Ratio quoted above.
I wonder if it is a simple addition of the two figures that I need to take into account when using the H-L platform0 -
Interesting. Which fund has that footnote? I looked at one I thought included the charge and the TER was indeed higher than it should be, but there was no footnote.I believe not. The footnote at the H-L website says:
¹ Additional annual charge of 0.5% + VAT is applied to this fund when held in the Vantage ISA and SIPP (capped at £200 + VAT per account). This additional charge is not accounted for in the Total Expense Ratio quoted above.
I wonder if it is a simple addition of the two figures that I need to take into account when using the H-L platform0 -
Many. I am now looking at the index-linked gilt funds available from H-L and for instance this Royal London one (http://www.h-l.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/r/royal-london-index-linked-gilt-income) has a TER of 0.42% and no extra charge but this L&G one (http://www.h-l.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/l/legal--and--general-all-stocks-index-linked-gilt-index-class-i-accumulation) has a TER of only 0.25% but also attracts the additional charge.
I wonder how to take this additional charge into account when comparing the two.0 -
Just add it on as you thought.Many. I am now looking at the index-linked gilt funds available from H-L and for instance this Royal London one (http://www.h-l.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/r/royal-london-index-linked-gilt-income) has a TER of 0.42% and no extra charge but this L&G one (http://www.h-l.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/l/legal--and--general-all-stocks-index-linked-gilt-index-class-i-accumulation) has a TER of only 0.25% but also attracts the additional charge.
I wonder how to take this additional charge into account when comparing the two.
I was looking at some of the other L&G trackers which have high TER's at H-L compared with the published values, but clearly something else is going on there.0 -
Would you think that for index-linked gilt funds, does it also make sense to go for the lowest charges or perhaps other parameters need to be considered too?
EDIT: I also note that the Royal London fund is an income fund while the L&G is an accumulation. If I request the income from the RL fund to be reinvested, would I icur some 'hidden' charge which would not arise if investing in the L&G Acc fund?0 -
I think the arguments made above about tracking error hold true for any index. The only reliable metric you have is TER (Edit: and initial charge if there is one), so factoring anything else in would be difficult.Would you think that for index-linked gilt funds, does it also make sense to go for the lowest charges or perhaps other parameters need to be considered too?
In my experience, the difference between Acc and Inc with reinvested income is negligible if there is any difference at all.EDIT: I also note that the Royal London fund is an income fund while the L&G is an accumulation. If I request the income from the RL fund to be reinvested, would I icur some 'hidden' charge which would not arise if investing in the L&G Acc fund?0
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