Morningstar
RecommendedMorningstar AwardsWhats New IconETFs Whats New IconIncome Week Whats New IconThematic Investing Whats New IconSign Up to Our Newsletters Open Window Icon
ETF Investing Ideas & News

Indexing Just Got Cheaper

Lyxor enters the London ETF market.

Emiko Kurotsu 18 May, 2007 | 2:25PM
Facebook Twitter LinkedIn
Font-Size
UK investors have just increased their indexing options with the launch of Lyxor Asset Management’s three new ETFs (exchange-traded funds) on the London Stock Exchange: Lyxor ETF FTSE All Share, Lyxor ETF FTSE 100, and Lyxor ETF FTSE 250. Their move into the London ETF market brings welcome competition to a useful but all too often ignored asset class.

All About ETFs
 ETFs are baskets of individual securities that, unlike OEICs or unit trusts, are traded and priced throughout the day on an exchange. They almost always replicate an index (there has been persistent talk of actively managed ETFs, though none have appeared as yet), but many charge less for their services than regular index funds do. Because the fund

s don’t have to service individual investors accounts (your account is with your brokerage), they can avoid many of the costs regular funds are saddled with. Investors pay just a brokerage commission for the trade and often incur a fraction of the total expense ratio (TER) that retail OEICs or unit trusts charge. The average TER for developed market equity ETFs, for instance, was just 0.38% while emerging market equity ETFs carried a TER of just 0.74% per annum as of December 2006.

ETFs can also be a good choice for investors with small sums to put to work: You can buy as little as a single share, which can be as low as £6+ commission. That’s much cheaper than the usual minimum investments for OEICs and unit trusts, which typically run upwards of £1000. That said, small investors should still exercise care: Depending on your broker, the cost of commissions on such small investments may loom too large to make the purchase economically viable. It’s also worth keeping in mind that ETFs trade at a market price rather than the portfolio’s net asset value (NAV). Although they typically track their NAV’s well, the potential exists for their market prices to deviate from NAV and impact returns. (Read more about the pros and cons of ETFs.)

More Competition a Boon
 The Lyxor launch may be a harbinger of things to come. Until now, Barclay’s iShares were the only ETFs available on the London market due in part to an irksome stamp duty rule that created a major disincentive for overseas fund companies to list here. Since the withdrawal of this rule in February 2007 (as we predicted in our fund commentary here), the playing field has opened up. Lyxor has taken advantage of this with the launch of the three new ETFs. The TERs of the new offerings are 0.3% (FTSE 100), 0.35% (FTSE 250), and 0.4% (FSTE All Share) per annum. That gives existing tracker funds and ETFs strong competition: the Lyxor FTSE 100 and FTSE 250 are now the cheapest available offerings for exposure to these indexes (the iShares FTSE 100 and iShares FTSE 250 ETFs charge 0.4% per annum while the lowest-priced FTSE 100 unit trust carries a TER of 0.41%). Even so, the Lyxor FTSE All-Share ETF (the only ETF that tracks this index), is still not the cheapest All-Share offering around. The Fidelity Moneybuilder UK Index fund can be had for an even cheaper 0.3% TER (as we note in our qualitative fund analysis of this offering.)

When it comes to indexing, costs are paramount and we’re glad to see increased competition leading to lower costs. Investors looking for dirt-cheap UK index exposure would do well to consider these ETFs options.

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.

Facebook Twitter LinkedIn
Font-Size

About Author

Emiko Kurotsu  Emiko Kurotsu is an exchange-traded fund analyst with Morningstar.

© Copyright 2024 Morningstar, Inc. All rights reserved.

Terms of Use        Privacy Policy        Modern Slavery Statement        Cookie Settings        Disclosures

The Morningstar Star Rating for Stocks is assigned based on an analyst's estimate of a stocks fair value. It is projection/opinion and not a statement of fact. Morningstar assigns star ratings based on an analyst’s estimate of a stock's fair value. Four components drive the Star Rating: (1) our assessment of the firm’s economic moat, (2) our estimate of the stock’s fair value, (3) our uncertainty around that fair value estimate and (4) the current market price. This process culminates in a single-point star rating that is updated daily. A 5-star represents a belief that the stock is a good value at its current price; a 1-star stock isn't. If our base-case assumptions are true the market price will converge on our fair value estimate over time, generally within three years. Investments in securities are subject to market and other risks. Past performance of a security may or may not be sustained in future and is no indication of future performance. For detail information about the Morningstar Star Rating for Stocks, please visit here

Quantitative Fair Value Estimate represents Morningstar’s estimate of the per share dollar amount that a company’s equity is worth today. The Quantitative Fair Value Estimate is based on a statistical model derived from the Fair Value Estimate Morningstar’s equity analysts assign to companies which includes a financial forecast of the company. The Quantitative Fair Value Estimate is calculated daily. It is a projection/opinion and not a statement of fact. Investments in securities are subject to market and other risks. Past performance of a security may or may not be sustained in future and is no indication of future performance. For detail information about the Quantiative Fair Value Estimate, please visit here

The Morningstar Medalist Rating is the summary expression of Morningstar’s forward-looking analysis of investment strategies as offered via specific vehicles using a rating scale of Gold, Silver, Bronze, Neutral, and Negative. The Medalist Ratings indicate which investments Morningstar believes are likely to outperform a relevant index or peer group average on a risk-adjusted basis over time. Investment products are evaluated on three key pillars (People, Parent, and Process) which, when coupled with a fee assessment, forms the basis for Morningstar’s conviction in those products’ investment merits and determines the Medalist Rating they’re assigned. Pillar ratings take the form of Low, Below Average, Average, Above Average, and High. Pillars may be evaluated via an analyst’s qualitative assessment (either directly to a vehicle the analyst covers or indirectly when the pillar ratings of a covered vehicle are mapped to a related uncovered vehicle) or using algorithmic techniques. Vehicles are sorted by their expected performance into rating groups defined by their Morningstar Category and their active or passive status. When analysts directly cover a vehicle, they assign the three pillar ratings based on their qualitative assessment, subject to the oversight of the Analyst Rating Committee, and monitor and reevaluate them at least every 14 months. When the vehicles are covered either indirectly by analysts or by algorithm, the ratings are assigned monthly. For more detailed information about these ratings, including their methodology, please go to here

The Morningstar Medalist Ratings are not statements of fact, nor are they credit or risk ratings. The Morningstar Medalist Rating (i) should not be used as the sole basis in evaluating an investment product, (ii) involves unknown risks and uncertainties which may cause expectations not to occur or to differ significantly from what was expected, (iii) are not guaranteed to be based on complete or accurate assumptions or models when determined algorithmically, (iv) involve the risk that the return target will not be met due to such things as unforeseen changes in changes in management, technology, economic development, interest rate development, operating and/or material costs, competitive pressure, supervisory law, exchange rate, tax rates, exchange rate changes, and/or changes in political and social conditions, and (v) should not be considered an offer or solicitation to buy or sell the investment product. A change in the fundamental factors underlying the Morningstar Medalist Rating can mean that the rating is subsequently no longer accurate.

For information on the historical Morningstar Medalist Rating for any managed investment Morningstar covers, please contact your local Morningstar office.

For more detailed information about conflicts of interest, including EU MAR disclosures, please see the “Morningstar Medalist Rating Analyst Conflict of Interest & Other Disclosures for EMEA”here

Select Your Site Edition To make sure the site is relevant to you, we need to know if you’re an individual investor or a financial professional.