Investors are set for a better deal as the arrival of United States giant Vanguard threatens to “rock the UK fund industry to its foundations”, a Midland financial expert predicts.
Adrian Pickersgill, of Stratford-upon-Avon firm Self Financial Planners, suggests the move will drive down charges, allowing individuals to keep a larger percentage of their financial return.
“This is good news for everyone investing in the equity markets,” he said. “It is going to shake things up big-time.”
Vanguard Investments UK is launching 11 UK and Irish domiciled funds available to investors.
And it highlights the discrepancy between such passively-managed funds and those that are actively managed.
Actively-managed funds look to beat the market and can sometimes achieve that. But charges reflect this. Passive funds, effectively trackers, that charge about one per cent, become more popular, championed by the likes of Sir Richard Branson. Exchange-traded funds have also been growing fast.
But, claims Mr Pickersgill, Vanguard is the “grand-daddy” of the sector, with more than three decades of index management experience.
Vanguard was founded by legendary American investor John Bogle and established the first indexed mutual fund in the United States in 1976.
In addition to the UK, it has offices in the US, Australia, Belgium, France, Switzerland, the Netherlands, Japan, South Korea, and Singapore. It claims total assets of approximately $1 trillion worldwide.
Annual charges on its new UK funds run from 0.15 per cent for its UK Equity Index Fund to 0.55 per cent for its Emerging Markets Stock Index Fund.
“These are very attractive levels and mean investors will keep a greater share of their return,” Mr Pickersgill said.
Figures from the US in the last 20 years show actively-managed funds producing about ten per cent per annum. In that period it is claimed that low-cost index trackers have returned 12.8 per cent, just below the 13 per cent of the market itself. Compounded up and taking in charge differentials, investors are missing out on huge sums, it is claimed. “That is why this is so exciting for UK investors,” Mr Pickersgill said. “These funds are probably the cheapest available to private investors.”
One potential drawback is that the minimum investment for those wanting to buy direct is £100,000 but Vanguard expects most people will invest through independent financial advisers. And, as it won’t pay commission – many IFAs survive on commission – the business is likely to come from fee-based IFAs and wealth managers, such as Self.
Announcing the launch, Tom Rampulla, managing director of Vanguard Investments UK, said: “Vanguard’s index funds offer investors broadly diversified exposure to equity and fixed income markets, at very low cost.
“We do not pay for distribution, and are committed to making Vanguard’s funds available to UK investors in ways which do not erode returns through high and unnecessary charges.
“Costs matter, as each pound of cost is a pound taken out of your investment. We are confident that these funds have among the lowest total expense ratios in their peer groups.”