Analysts Upgrade 4 Tracker Funds

LOW COST FUNDS: Morningstar passive fund analysts have upgraded four tracker funds with positive past performance and commitment to low annual fees

Jose Garcia Zarate 28 January, 2015 | 12:30PM
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Morningstar analysts have upgraded the rating on four passive funds: the L&G All Stocks Index Linked Gilt Index fund, the Vanguard UK Government Bond Index fund, the Vanguard Global Bond Index GBP Hedged fund, and the BlackRock UK Gilts All Stocks Tracker fund.

L&G All Stocks Index Linked Gilt Index

The L&G All Stocks Index Linked Gilt Index fund has been upgraded to Silver. The fund previously held a rating of Bronze. L&G has proactively cut fees on this fund since the inception of RDR. As of this review, the fund‘s fees are at the low end of the cost spectrum for this particular exposure.

The opportunity set available for active managers to add value over the benchmark seems somewhat limited. Investors must consider that the fund’s high duration is an intrinsic feature of the UK linker market and this may cause volatility. Overall, however, Morningstar sees this is a good tracker that is in a position to deliver above-average returns on a medium- to long-term basis. Besides, Morningstar values the efforts undertaken by L&G to become a highly cost-competitive provider of passive funds.

Vanguard UK Government Bond Index

Analysts have upgraded the Vanguard UK Government Bond Index fund to Gold. The fund previously held a Silver rating. This very low-cost, accurate tracker has shown a high degree of consistency in delivering above-average returns relative to its Morningstar Category. The opportunity set available for managers to add value over the benchmark in this particular market exposure is limited.

This, together with its very low cost and Vanguard’s record in passing savings to investors in the shape of fee cuts, gives Morningstar strong conviction in the fund’s ability to consistently outperform its category peers.

Vanguard Global Bond Index GBP Hedged

The Vanguard Global Bond Index GBP Hedged fund has been upgraded to Silver from a Bronze rating. This fund is the ultimate one-stop shop for investors to cover their fixed-income exposure needs. The fund is managed as a global team effort. The fund is not only a very accurate tracker--which speaks highly of the stratified sampling techniques employed--but also a slightly above-average investment proposition in the context of its Morningstar Category.

Besides, its ongoing charge of 0.15% is highly competitive and places the fund in a good position to outperform its category peers.

BlackRock UK Gilts All Stocks Tracker

This is a low-cost, accurate tracker that has shown a fairly high degree of consistency in delivering above-average returns relative to its Morningstar Category. The fund engages in securities lending, in some instances lending up to the maximum allowed of 50% of holdings. The securities lending programme is well-managed and tightly controlled for counterparty risk; however, Morningstar would like to see the lending revenue split being more favourably to the end investor.

Overall, the opportunity set available for managers to add value over the benchmark in this particular market exposure is limited. This gives Morningstar high conviction in the fund’s ability to outperform its category peers.

Morningstar has upgraded the fund to Silver. The fund previously held a Bronze rating.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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About Author

Jose Garcia Zarate

Jose Garcia Zarate  is Associate Director of Passive Strategies Research for Morningstar Europe