Passive Fund Fees Fall and Investment Trusts Sales Soar

NEWS YOU CAN USE: What happened in the City in September? Passive fund providers have competitively reduced charges and closed-end funds are on track for a record year

Emma Simon 1 October, 2015 | 10:09AM
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It’s been another testing month for investors. Market volatility has continued, with large blue chips Glencore (GLEN) and Volkswagen (VOW) suffering heavy falls. Due to the respective size of these companies, this has hit valuations on many UK and European index funds this month – as well as causing problems for some less nimble active managers.

Much of the investment news this month has focused on passive funds and investment trusts – two areas that have seen a steady rise in sales since RDR rules to make fund charges more transparent came into force in 2013. With further price cuts, new launches and lower discounts this trend looks set to continue.

Passive Funds Price War Intensifies

Fidelity Worldwide Investment has fired the latest salvo in the passive fund ‘price war’. It has cut charges on its seven main index funds.

From October 1 those buying its UK Index funds through its own Personal Investor platform will pay annual charges of just 0.06%; it’s US tracker charges 0.07%, while the Japan and Europe index funds will charge just 0.1%.

Charges have also been cut for those buying through other platforms.

Fidelity kick-started this price war in May, with sweeping fee cuts across its range of passive funds. This prompted similar action from Vanguard, L&G and BlackRock, with each jostling to get the coveted ’cheapest tracker’ slot on various platforms.

Fidelity said this latest round of cuts means its charges are in line – or in most cases lower – than fees charged by rivals.
L&G also offers a UK index fund at 0.06% – but only to those buying through the Hargreaves Lansdown.

Lower fees should ensure sales of tracker funds remain strong. Last year, the Investment Association said it has been a record year for passive funds: £4.9 billion was invested – a rise of 44%.

New Appointments at L&G

Price wars can lead to job changes. L&G Investment Management, which is looking to consolidate and grow its position in this market, has announced it is appointing Chad Ravkin as its new global head of index funds.

Ravkin takes over from Ali Toutounchi, whose retirement was announced in January. Ravkin has been with LGIM since 2013 and until now has been in charges of its US index funds.

New ETF for Crime Busters

For passive investors wanting to diversify from vanilla UK or US index funds, a new “cyber security” exchange traded fund has launched on the London Stock Exchange. This is based on a similar launch in the US, which raised more than $1 billion in less than a year.

The new product has been launched by ETF Securities, which has teamed up with US-based provider ISE ETF Ventures. The ETF will track companies involved in tackling cyber crime – a growing problem for many international companies and government. To put the problem in some perspective ISE ETF Ventures estimate there were some 42.8 million cyber attacks in 2014, costing an estimated $400 billion.

Investment Trusts Record Year

The Investment Trust sector is on track for a record year. In the first three quarters of 2015 it has raised more funds – £3.9 billion – than it has in any other full calendar year. Part of this success has been down to new launches – such as Woodford Patient Capital, which has raised £830 million since April.

Elsewhere high yielding trusts in specialist sectors – such as the peer-to-peer trust have also proved popular. Trade body, the Association of Investment Companies pointed out that many trusts now employ mechanisms to help control discounts, and this – combined with their low fee structure – have boosted investors’ confidence in the sector.

Jupiter CIO Steps Down to Focus on Fund

The experienced and respected fund manager, John Chatfeild-Roberts, has stepped down from his role as Chief Investment Officer at Jupiter.

He will be replaced by Stephen Pearson, currently head of investments at the company.

However Chatfeild-Roberts is not relinquishing his fund manager duties at Jupiter. He will now focus solely on the Merlin multi-manager range of funds.

This award-winning range of funds has grown substantially over the past five years, doubling in size to £8 billion under management.

Chatfeild-Robers has held the CIO post since 2010, when he took over from Edward Bonham-Carter.

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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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Glencore PLC475.00 GBX0.45Rating
Volkswagen AG141.40 EUR0.21Rating

About Author

Emma Simon

Emma Simon  is a financial journalist, specialising in investment and consumer issues, writing for Morningstar.co.uk

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