Fidelity slashes index tracker fees

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Analyzing an investment annual report.

Fed up with fund managers taking too big a slice of your investment returns? Then Fidelity's low-cost trackers may be for you.

Fidelity Worldwide Investment - one of the UK's biggest fund-management groups - has stolen a lead in the war to attract British investors by slashing the fee on a range of ultra-cheap index-tracking funds.

The asset manager, which manages over £166 billion for more than five million investors, has cut the charges on seven of its leading 'passive' funds to levels never seen before in the UK.

Tracking the market cheaply

One routine complaint from investors is that 'active' fund managers who buy and sell shares on behalf of private investors charge fees that are simply too steep. For example, a typical managed fund will charge an annual management charge of, say, 1.5% to 2.5%, plus an initial (upfront) charge of around 5%.

In other words, by investing in these funds, you could lose upwards of 7.5% of your capital on day one.

With fund fees staying stubbornly high, more and more private investors are turning to passive or tracker funds to access the stock market. Unlike actively managed funds, trackers have no Ferrari-driving stock-pickers growing rich on investors' hard-earned mone

Instead, tracker funds passively follow a particular index (such as the FTSE 100 index), delivering returns more or less in line with a wider market as a whole, minus some modest fees and any tracking error.

Cutting out fund managers by investing in trackers may deliver higher returns in the long run. What's more, the lower a tracker's fees, the higher the return to investors, all other things being equal. That said, one problem with index trackers is that, in some cases, their ongoing charges are categorically too high for so-called low-cost funds.

For the record, a decent UK index tracker should charge a management fee of no more than, say, 0.3% a year. Amazingly, several trackers charge more than three times as much in fees, such as the Virgin UK Index tracker, which charges 1% a year and in which almost £2.7 billion is invested. Likewise, the Halifax UK FTSE All-Share Index Tracker and Halifax UK FTSE 100 Index Tracking funds both charge 1% a year merely to hug their index benchmarks.

Fidelity flattens its fees
Fidelity has broken ranks by slashing the fees it charges for six of seven new index trackers it launched in February, down to as little as 0.07% a year. To put this microscopic charge into perspective, it amounts to a mere 70p for every £1,000 invested. This is the lowest charge ever levied by any UK-based fund open to private investors.

Here's a list of all seven of Fidelity's ground-breaking trackers, together with the fees currently charged by four leading UK providers of low-cost passive funds:

Provider

UK

US

Japan

Europe

ex-UK

Pacific ex-

Japan

Emerging

Markets

World

Fidelity

0.07%

0.08%

0.10%

0.10%

0.13%

0.23%

0.18%

Via other platforms

0.09%

0.10%

0.12%

0.12%

0.15%

0.25%

0.20%

BlackRock

0.16%

0.17%

0.17%

0.17%

0.20%

0.26%

0.21%

Vanguard

0.15%

0.20%

0.30%

0.25%

0.30%

0.40%

0.30%

L&G

0.17%

0.18%

0.19%

0.20%

0.22%

0.43%

0.31%

HSBC

0.17%

0.18%

0.24%

0.26%

0.33%

-

-



As you can see, Fidelity's new range of trackers is remarkably cheap. In fact, these passive funds are so cheap that their fees are typically less than half of those charged by comparable trackers offered by the UK's four largest managers of passive funds.

Ditch and switch your trackers today
With £7 billion sitting in passive funds with ongoing fees of 1%-plus a year according to data from the Investment Management Association, we could be wasting as much as £50 million a year on overly expensive trackers.

If high charges are eating into your investment returns, then these ultra-low-cost Fidelity funds should be right up your street. You may not be able to control the ups and downs of world stock markets, but you certainly can control what you pay to invest in share-based funds!

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