A round-up of low-cost trackers unearths some new names.
Here at The Motley Fool, we're big fans of low-cost index trackers and index-tracking ETFs. Cheap, diversified, easily bought and sold: no wonder so many of us rely on trackers as a key plank of our investment strategy.
In short, if there's a better way to acquire broadly-based exposure to stock market returns, we'd like to hear about it.
Better still, most providers and investment platforms make it easy to use trackers for regular savings -- dripping money into them month after month, thereby capturing the benefits of pound-cost averaging as well.
And especially in times of market turmoil, the charms of the index tracker or index-tracking ETF come into their own.
For years, for instance, I've taken advantage of periods of market turbulence to throw extra money at my tracker investments, secure in the knowledge that when the market goes up, my tracker investments will climb commensurately, too.
New entrants
But the tracker market isn't static. As with mortgages, credit cards and savings accounts, the 'Best Buy' providers come and go, as competition relentlessly drives down costs and fees. And that's especially so where competition is toughest, in the FTSE 100 and FTSE All-Share tracker markets.
Ten years ago, for instance, FTSE tracker products from providers such as Virgin and Legal & General (LSE: LGEN) ruled the roost. These days, other names top the league tables -- although Virgin and L&G products still offer good value in certain niche sectors.
In the last couple of years, for instance, Vanguard has entered the UK market. Since arriving in the UK in 2009, the mutually‑owned American firm set up by investing legend Jack Bogle has attracted quite a number of new customers -- building-up, from a starting point of zero, some £2 billion in assets under management.
HSBC (LSE: HSBA), too, has made a splash, famously dropping tracker prices across its entire range, and also launching a number of low-cost index-tracking ETFs, as well.
All of which means that it's probably time for one of our periodic trawls of the tracker marketplace. In short, which providers offer the lowest-cost products today?
So I've done some digging, and uncovered the five cheapest providers in each of the FTSE 100 and FTSE All-Share tracker markets.
FTSE 100
Let's start with FTSE 100 index tracking funds, where I looked for UK-domiciled trackers, available as accumulation units, and which didn't charge an upfront initial commission.
I've listed below the five cheapest FTSE 100 trackers that I found. All the quoted TERs have been checked against the provider's documents, or Trustnet, or both.
| FTSE 100 Index Tracker | Total Expense
Ratio (TER) |
|---|
| HSBC FTSE 100 Index | 0.27% |
| Santander Stockmarket 100 Tracker Growth | 0.35% |
| Liontrust Top 100 Fund | 0.42% |
| Prudential UK Index Tracker | 0.50% |
| Legal & General UK 100 Index | 0.81% |
Certainly, it's a list that includes a name or two that I hadn't expected to feature, such as Prudential (LSE: PRU) and Santander. And from what I could see, the number of providers offering outright 'Bad Buys' -- sky-high TERs and upfront charges -- has fallen sharply.
FTSE All-Share Trackers
Let's now turn our attention to FTSE All-Share trackers. Here, the range is broader, and the costs often lower.
That shouldn't be a surprise, of course, because there's no need for the tracker provider to buy and sell the underlying shares when the composition of the FTSE 100 index changes, as it does every quarter.
In short, a FTSE All-Share tracker is more of a 'buy and hold' affair, as well as one that is marginally less exposed to overseas-based resources giants and banks. For the savvy tracker investor, then, there's an argument for going for a low-cost FTSE All-Share tracker as opposed to a FTSE 100 tracker.
Once again, I've restricted my search to UK-domiciled providers with no upfront initial charge, and listed the five 'Best Buys' I could spot. As before, I've gone for 'accumulation' units, and the quoted TERs have been checked against Trustnet, or providers' own documentation, or both.
| FTSE All-Share Index Tracker | Total Expense
Ratio (TER) |
|---|
| Vanguard FTSE UK Equity Index | 0.15% |
| HSBC FTSE All Share Index | 0.27% |
| Fidelity Moneybuilder UK Index | 0.30% |
| F&C FTSE All Share Tracker | 0.40% |
| M&G Index Tracker | 0.46% |
Compared to a few years back, it's a list with some surprising omissions. No L&G Index Trust, for instance -- still, I believe, the UK's largest index tracker, despite its 0.56% TER.
"In terms of new money, people are coming to us and Vanguard first," explained HSBC's head of trackers Andy Clark when I spoke to him last week. "But in terms of existing tracker investments, many people don't really know what they're paying -- and until investors start voting with their feet, there's little incentive for such providers to start cutting costs."
Foolish Bottom line
Clearly, Vanguard and HSBC have benefited from badging themselves as low-cost providers. As noted above, Vanguard has captured £2 billion in new business, and since dropping its charges, HSBC has seen its tracker funds under management double, from less than £1 billion to over £2 billion.
And in contrast to the larger sums often invested by Vanguard clients, a surprising amount of that inflow to HSBC is retail savings plans, adds Mr Clark: regular investments of £20-£100 per month, a mode of investment where he believes that HSBC has the edge.
That said, regular saving into Vanguard products through platforms such as Alliance Trust Savings certainly is possible, as many Fool readers know. And as more platforms carry Vanguard products, regular saving into them will feature more strongly.
But of course, FTSE 100 and FTSE All-Share index trackers aren't the only route to tracker investing. So in a follow-up article, I'll look at today's low-cost index-tracking ETFs and some international trackers.
In the meantime, if you've invested in some of these less well-known trackers -- such as the F&C, Prudential or Santander offerings, for instance -- then please share your experiences in the box below.
> Malcolm and his delightful wife Mandy hold index trackers from HSBC, Vanguard and Legal & General.
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