cheap Index Trackers, where to find?

compound

Hi All,


I am trying to find the cheapest index tracker fund for the FTSE all share with a low tracking error.


Also I want to purchase it through a stocks and share ISA. I am trying to avoid costs and charges as much as possible. I am looking to make a regular contribution on a monthly basis over a long term to the fund.


Is there anyone who can point me in the right direction.




Many Thanks

Kendall80

The Vanguard FTSE all-share is just 0.08% through Charles-Stanley-direct.

Ryan_Futuristics

With a 0.2% entry fee - a lot of the Vanguard marketing material is aimed at the US (over here they're often on the expensive side for trackers)

Legal & General UK Index is 0.06% with no bid/spread or entry fee (which makes a big difference when rebalancing)

compound

Ryan_Futuristics wrote: »

With a 0.2% entry fee - a lot of the Vanguard marketing material is aimed at the US (over here they're often on the expensive side for trackers)

Legal & General UK Index is 0.06% with no bid/spread or entry fee (which makes a big difference when rebalancing)

Hi Ryan Futuristics, thanks for your response. Is the 0.06% only available when going through Hargreaves Lansdown? Is HL a cheap platform? I am thinking of starting of by making a £100 a month contribution and see how things go from there. I will look to do this contribution over a very long term.

SnowMan

The Vanguard FTSE all share tracker is the best all share tracker out there. It's ongoing charges figure (OCF) is close to the lowest available, but the lower tracking difference of Vanguard makes it a clear winner on overall cost.

Remember the 0.2% dilution levy is not an initial charge. It effectively gets paid into the fund and shared out amongst existing unitholders. So yes you get a 0.2% deduction when you buy in but you also get a share of all the 0.2%s that other investors subsequently buying in pay.

Hargreaves Lansdown would be a bad choice. The cheapest platform for holding an ISA depends on individual circumstances but Cavendish (0.25%pa platform charge and no exit charges) is clearly cheaper than Hargreaves Lansdown (0.45%pa and exit charges).

See Special Savers's opening post in the following thread for sources of information on finding the best/cheapest ISA platform

https://forums.moneysavingexpert.com/discussion/comment/42576114#Comment_42576114

collingbone614

HL is considered to be on the more expensive end of the spectrum, clocking in at 0.45% per annum. The cheaper ones are in the region of 0.25%, though no doubt someone on here will advise you if there are some weighing in at less. Percentage based brokers are cheaper when you have a more modest portfolio, but if and when it becomes more significant - say, above £20,000 - you will likely get a better deal by using a fixed-fee broker such as AJ Bell or Interactive Investor.

I'm not sure that a FTSE All Share is really what you'd want as a your one and only holding. If you want to pick out a broadly diversified tracker as your only choice, you'd be better off looking at a global index tracker. This is something akin to what Lars Kroijer advocates in his book Investing Demystified.

Or alternatively you can buy a 'fund of funds' such as Blackrock's Consensus series or Vanguard's LifeStrategy range. These allocate a portion of your funds to a number of index trackers following a range of markets around the world. The advantage being that you can buy a globally diversified portfolio - usually with ten or more underlying funds - using a small monthly payment.

Of course, I'm not a financial adviser etc.

Ryan_Futuristics

SnowMan wrote: »

The Vanguard FTSE all share tracker is the best all share tracker out there. It's ongoing charges figure (OCF) is close to the lowest available, but the lower tracking difference of Vanguard makes it a clear winner on overall cost.

Remember the 0.2% dilution levy is not an initial charge. It effectively gets paid into the fund and shared out amongst existing unitholders. So yes you get a 0.2% deduction when you buy in but you also get a share of all the 0.2%s that other investors buying in pay.

I'm in the process of opening a deprogramming centre for Vanguard devotees



Personally I find tracking error a slightly meaningless concept - a tracker is effectively one of the worst portfolios you can own (using almost any variable other than market cap to weight an index tends to result in better returns ... essentially because you're picking up more undervalued stocks)

There's nothing sacred about a cap-weighted index (it's just used as an example so often because it produces such mundane returns)

puk999

SnowMan wrote: »

Remember the 0.2% dilution levy is not an initial charge. It effectively gets paid into the fund and shared out amongst existing unitholders. So yes you get a 0.2% deduction when you buy in but you also get a share of all the 0.2%s that other investors subsequently buying in pay.

If you purchased one day and sold the next (talking theoretically of course!) then you'd lose the 0.2%, correct?

bowlhead99

compound wrote: »

Hi Ryan Futuristics, thanks for your response. Is the 0.06% only available when going through Hargreaves Lansdown? Is HL a cheap platform? I am thinking of starting of by making a £100 a month contribution and see how things go from there. I will look to do this contribution over a very long term.

The L&G UK index fund is available in several 'versions', i.e. different share classes. HL do have access to the cheapest one with a total ongoing running cost of 0.06% - Class C. http://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/l/legal-and-general-uk-index-class-c-accumulation

Some of the other classes available on other providers' platforms might cost you a bit more (e.g. Class I is 0.10%). Overall what you pay is the L&G charge inside the fund and then the platform provider's charge on top.

So, as others have said, HL is not particularly cheap (because their 0.45% platform fee percentage for running your account and giving you access to the platform through which you hold your investment in L&G, is several times the small fee that you're paying to L&G out of the fund assets for them buying and holding the thousands of underlying companies on the stock exchange). In other words, 0.45% platform + 0.06% to manager is not going to be as cheap as 0.2% or 0.3% or even 0.35% to platform + 0.10% to manager.

However HL are a friendly bunch and some people like them. Even paying half a percent total charges per year on all your investment, can be a small amount of actual cash. Quite a lot less than paying a flat fee of £10 a quarter or something at Provider X, or £1-£2 for each of your monthly purchases at Provider Y.

So in context, say you were putting in £100pm. After 2 years you might be up to £2.5k ish but your average amount invested over the two years is only half that. That means the L&G charge every year is only a pound or so, whether it's 0.06% or 0.10%. Obviously this will go up over time. But early days, the absolute cheapest thing is not too important - you might be put off by a provider in the 'more expensive end of the spectrum' but it still might not be much in cold hard cash. Just consider total cost of ownership over time and look at exit fees if you want to transfer out.

I would agree that if you're only investing in one fund it probably makes sense to be invested across global markets rather than just the UK. Here's the top 10 holdings of the UK allshare index:
HSBC Holdings PLC (UK Reg) 5.71%
Royal Dutch Shell A 4.06%
BP 4.01%
GlaxoSmithKline 3.29%
British American Tobacco 3.12%
Royal Dutch Shell B 2.88%
AstraZeneca 2.68%
Vodafone Group 2.60%
Diageo 2.15%
Lloyds Banking Group 2.00%

So, it's very heavily concentrated in a few banking, oil and pharma stocks which have international businesses but are headquartered/ listed in the UK. There are 2000+ companies listed in the UK, and the spread across them in a market-capitalisation-weighted index is pretty rubbish. Not to mention the 20,000 major listed companies across the planet which are not listed in the UK and not covered by your investment.

IMHO, it would be more important what markets you actually cover which will make a lot more than 0.06% of difference to your returns. Likely a lot more than 1%. So it is not that you can ignore the fraction of a percent charged by the fund manager or the most expensive platform you could find, but minimising fees is absolutely not the only thing to worry about.

Ryan_Futuristics

Yeah, for me, Hargreaves is good value weighed against the quality of service, the free fund dealing (which saves me probably a fair bit more than 0.2% when it comes to annual rebalancing with quite a broad portfolio), some of their fund discounts, and that I feel (given their size) investments are quite safe and well covered with them

I do know of someone in the US who lost their portfolio when their low-cost broker went bankrupt (apparently they're going to be compensated eventually)

And as said, the decisions you make (from asset allocation to whether you're buying at good value) will tend to have a much greater impact than platform charges ... For the 'passive, passive, passive' tribe, admittedly if you're not touching your portfolio, get those unnecessary charges right down

bowlhead99

puk999 wrote: »

If you purchased one day and sold the next (talking theoretically of course!) then you'd lose the 0.2%, correct?

That's true. But the fact that the new investors (rather than all the investors en masse) are picking up the costs associated with their admission to the fund, lowers the general running cost for an investor who buys and holds. Therefore, for those investors who stick around, they'll find the fund can keep closer to the underlying index return rather than continually lag it (as a fund who had all its investors bear those charges, would have to).

If you can pull those charges out of the overall performance numbers and just attach them to new contributions they'll give a 'fair' effect to everyone. An explicit levy is painful for transient investors who drift in and out. Obviously if you are constantly adding cash each month you are always paying those charges so you don't match the overall performance chart, but after 60 months at £100 a month you'll only be paying a few pence of dilution levy on each new monthly chunk, while your existing £6000 is not attracting any further costs. Without the dilution levy, they would be splitting all those charges over everyone, and you as a LTBH investor would get a lot of them because you are a relative bigger holder than someone who just drifts in and out of ownership, attracting costs but never sticking around to pay them.