Cheapest Way Into Global Tracker Funds

mrke wrote: »

Yes cost is very much the key....

Looks like the winner is: 0.37% Charles Stanley Direct & Fidelity World Index P.

Cost isn't really 'very much key' with the level of cost you are looking at in your comparisons.

You said you wanted a global fund. Instead you are now looking at compromising by getting a fund that excludes emerging markets just because it's cheaper. So you can get your overall cost to £3.7 per year per £1000 invested instead of £3.9.

Say as an example, the major world growth areas with developing markets and higher levels of economic growth (where company shares are currently available for a lower multiple of those companies' profits) are able to outperform the shares of companies from developing markets by a percent or so over the long long term that you'll be holding the investment. If ten percent of your fund is invested in those areas instead of being in developed markets, the ten percent delivering 1% better results translates to a 0.10% performance improvement. But you are looking to ignore that opportunity because you want to save 0.02%.

Markets go up and down at different times. In some years the difference in returns between the average developed economy and the average emerging economy may be 20%. So having a tenth of your portfolio in emerging, instead of having none of your portfolio in emerging, will change your fund's overall performance by 2%. That's one hundred times greater impact that year, than your choice to avoid emerging markets to save 0.02% fees.

Emerging markets companies may do better than developed one year, or worse another year, one thing you can say is that they will generally be different, and generally the difference (for better or worse) will be more than a percent each and every year. So, deciding you are going to shun a part of the global stockmarkets because you don't want to save two pence on fees for every £100 invested, does not make sense. The whole reason you are considering indexes is broad exposure at low cost, which is a fine philospohy to have. Don't compromise the exposure to get even lower cost, when you are already at lower cost.

The 0.02% change in cost won't make a practical difference to the net return for a given gross performance figure. The gross performance figure itself, which is a function of what investments are held, will make a practical differnce to the net return.

As Coldiron said above: "if cost alone is your metric: ..." . But cost alone should not be your metric. If it was all about cost, you can pick up a UK-only or US -only tracker for under 0.1%. But putting your money in that would be ignoring all the other parts of the world, thus the search for something global. By ignoring emerging stockmarkets you are giving up the search for more global places to invest, just to save 0.02% a year which is only £20 on £100,000, and you don't have anything like £100,000 to invest.