HSBC becomes the first fund manager to respond to Vanguard's entry into the UK index tracker market.
As we reported a couple of weeks ago, US fund giant Vanguard has now entered the UK market with a suite of index trackers. The headline grabber was a fund following the FTSE All-Share index that came with annual charges of just 0.15%.
Unfortunately, the minimum direct investment in this fund is £100,000 although negotiations are underway with some fee-based IFAs and various fund supermarkets, which should open the door to investors with much lower sums.
For example, Alliance Trust (LSE: ATST) is due to offer Vanguard funds from tomorrow (1 July) via its Savings Platform. Eleven funds will be available and the minimum investment will be £100 -- Alliance's usual dealing fee of £12.50 will apply for online deals (telephone or postal dealing will cost £20).
Enter HSBC
We were hoping Vanguard's move might tempt some other index tracker managers to lower their fees but, in all honestly, we didn't expect to see anything happen in the short term. The fund management world is not known for being fleet of foot -- indeed, Vanguard has been planning its entry into the UK for a decade.
Then, on Monday, HSBC (LSE: HSBA) became the first fund manager to blink, and cut its charge on seven of its index trackers.
HSBC's FTSE 100 fund will see its total expense ratio (TER) fall from 1.14% to 0.27%. Its All-Share and FTSE 250 trackers will also see their TERs cut to the same level (although HSBC's All-Share tracker was already available via Hargreaves Lansdown at 0.27%).
Those who like to invest further afield will be pleased to hear that HSBC's American, European, Japan and Pacific tracker funds will see their TERs cut to between 0.28% and 0.37%.
Unlike Vanguard, the minimum investment level with HSBC's trackers is a much more digestible £1,000, with £50 for regular investment. The new charges take effect from September 1st and apply to both existing and new customers.
So who's next?
HSBC has always been regarded as one the more consumer friendly of the big banks but it's not particularly well known for its fund management division. At the end of 2008, the Investment Management Association ranked it as the 27th largest equity manager in the UK with just over a 1% market share.
Vanguard is a little more substantial to say the least. With around $1 trillion in assets, it's twice the size of the entire UK unit trust/OEIC market! So the impact it might have on the UK fund management industry shouldn't be underestimated.
Index tracker charges have generally been too high for too long in the UK. It doesn't cost anywhere near ten times as much to run a tracker that is ten times the size. Now the UK index tracker market is more substantial, we should see charges creep lower and fall more in line with the US market. This, in turn, should help reduce fees for non index tracking funds, too. At least, that's what we're hoping will happen!
The question now is which fund manager(s) will be next to cut their tracker charges?
More on index trackers:
