Square Mile ratings highlight low cost passives

Square Mile's steps in assessing funds include a screen to pick out those with an annual management charge (AMC) of less than 0.3 per cent. As a result all the passive funds it rates have an ongoing charge of less than 0.3 per cent, with the exception of L&G Global Emerging Markets Index (GB00B4KBDL25) at 0.33 per cent.

"Charges have a significant impact on a passive fund's ability to perform, and while the perception is that passive vehicles are a cost-efficient means of gaining market exposure, there is gross discrepancy in the fees levied on funds," said Jason Broomer, head of investment at Square Mile. "£1 in every £5 invested in UK passive vehicles sits in vehicles with an AMC in excess of 1 per cent. By comparison, the cheapest funds have charges of one-tenth of this and investors in UK passive funds could save £110m a year by switching from high- to low-cost providers. This equates to £90 a year for individuals with £10,000 invested in index trackers."

Square Mile also screens out funds with less than £50m of assets under management and calculates the 30-day moving average for 12-month rolling data, as it considers funds primarily on their one-year daily rolling performance records over five years. Square Mile adds that as total return is the principal rationale for investment, return difference - defined by the difference between the performance of the fund and the index it tracks - is also a key consideration.

Funds achieving R ratings are managed efficiently and are of sufficient size to allow an accurate implementation of their strategy.

Square Mile's R rating is awarded to funds that meet the highest standards in their fields but cannot be readily differentiated between each other - for example, because they are passive. Asset managers do not pay Square Mile for the ratings.

Cheapest passive funds rated by Square Mile

Source: Square Mile