ishares emerging markets UK Different Class

csgohan4

Just wanted to ask why they have so many different types of classes for the same UK Fund?
The monevator mentions about the same fund but different price points
'Share class – A single fund may offer itself up in more guises than Zeus, as denoted by its share class. Instead of turning up as a bull or swan like a Greek god, a fund simply puts some letters in its name (e.g. Class A or D or C) to indicate that exactly the same product is available at different costs.'

But what would the point be if everyone choose the one the cheapest one?

https://www.ishares.com/uk/individual/en/products/etf-investments#!type=all&fac=43511&fmkt=43524&view=keyFacts

bowlhead99

People will (usually) choose the cheapest one available to them via their platform.

But as certain classes (designed for institutional investors, or created as a sweet deal for a particular platform that negotiates hard for an exclusive (or semi-exclusive) class as a distributor to large numbers of retail investors) have a requirement on minimum holdings, they are not available on all platforms. 

You can imagine that some fund managers do not want to mess around scratching for an investor to put in £100 when they are running a billion pound fund, so the share classes or unit classes offered to retail investors are traditionally more expensive than the classes for institutional investors such as insurance companies, pension funds and large corporates who will put in £millions at once. 

Following the FCA 'retail distribution review' and 'platform review' in 2013/14, fund managers catering to retail investors now all offer 'clean' share classes which don't bundle an extra management fee to provide a kickback to an investment adviser or investment platform, however the legacy 'full bundled fee retail class' may still exist for investors who have not switched from it or are investing direct rather than through a platform. Investors going through a platform who are in the old fashioned class will get a rebate on the higher 'bundled fee', if they pay it, but new investors would take the clean class.  There may also be 'super-clean' extra discounted classes on some large platforms which get the fees for retail investors down towards what the large institutions pay. Or the platform may simply offer you the institutional class, because its investors combined already have enough invested that the platform (as a financial institution itself) is already holding units in the institutional class and meets the terms and conditions to buy more.

Some funds offering a cheap institutional class will offer an even cheaper version of that class when the institution in question is affiliated to the fund manager, so that their internal funds which invest in their own funds do not have a lot of cost exposure at the underlying fund.

The Monevator article you mention did a reasonable job of explaining the 3 main types - for retail investors, for institutional investors, and platform exclusives. 

On your link, iShares Emerging Markets Equity Index Fund (UK) has the original  class L for institutional investors with £1m minimum at 0.26% and class A launched the following year for retail investors with £500 minimum at 0.61% and Accumulation version only.  Since then they have launched D at the time of the retail distribution review and more recently H (both of those classes have now aligned at 0.18% with £100k minimums, and even if you don't have as much as £100k to invest, your platform probably does when they aggregate your holdings with other customers). There is also a class X at 0.0%, so that if Blackrock's own fund-of-funds products were investing in Emerging Markets they could use that investment vehicle for free. But you as an individual cannot.

In practice, 'buy whatever is the cheapest' is common sense, and it should be easy enough to see on the factsheets or KIIDs what the running costs are, on whatever platform you use. Though because some funds have exclusive or semi-exclusive classes with particular retail platforms there can be some hassle when transferring from one platform to another when they each use a different class for their typical customers.

csgohan4

Thanks very well explained as usual from your posts which I have been looking at for the last 6-12m from forum history.