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Vanguard slams low-cost rivals over charges

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Vanguard claims that low-cost funds that charge extra for tactical rebalancing add little value for clients.

In June, Vanguard launched five risk-rated multi-asset funds that use index trackers to a pre-set asset allocation, rather than tactical rebalancing.

The annual charge on the funds range from 0.29 per cent to 0.33 per cent, with no initial charge.

Head of sales Nick Blake says: “Other competitors are loading a margin for tactical rebalancing into their products. Our view is that it is difficult to get right consistently and add value over the long term.”

HSBC is the latest entrant into the low-cost area with the launch this month of three risk-rated funds, which have an annual charge of 0.5 per cent and no initial charge.

HSBC head of external distribution Phil Reid says: “If you get the asset allocation right, it has been shown that this will drive the most returns, so we think that our offering is competitive.

“You can get big distortions if you are not rebalancing. IFAs are using our funds as building blocks, so we do need to take a view in terms of asset allocation.”

Evolve Financial Planning director James Norton says: “HSBC will get some asset allocation decisions right and others wrong but over the long term the cost will outweigh any benefit delivered.”

In February, JP Morgan launched a low-cost fund with a maximum total expense ratio of 0.55 per cent. Investors pay for stock selection, which is included in the annual charge.

Schroders launched three low-cost funds this year with capped TERs of between 0.4 and 0.5 per cent. Schroders makes tactical asset allocation decisions and the cost is included in the AMC.

Fidelity launched three low-cost funds this month. The commission-free share class has a TER of 0.67, which includes the cost of active asset allocation.
JP Morgan, Schroders and Fidelity declined to comment.

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Readers' comments (1)

  • Not convinced that rebalancing makes much sense longer term and where it does it is better done by a fund house than an IFA. In any event I hope to see more of these "lower" cost solutions in the near future.

    Figures as low as 0.25% to 0.5% pa certainly call into question some of the plafform and advice costs that are being added

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