Asset manager Vanguard has trimmed the fees on its LifeStrategy fund range, the third cut since its launch in June 2011 and the latest in a series of price cuts in the passive funds industry. The ongoing charge for these five funds has been cut from 0.24 per cent a year to 0.22 per cent. The Vanguard LifeStrategy funds offer exposure to a mix of global equity and fixed-income investments, based on the level of risk-return an investor wants to take, and their underlying investments are Vanguard's index funds and exchange traded funds (ETFs).
"As our funds grow in size, and we broaden our presence in the UK, we will continue to use the resulting operating efficiencies to lower costs for investors," said Robyn Laidlaw, head of UK distribution for Vanguard.
The funds in aggregate have £5bn in assets under management.
The fee cut makes the LifeStrategy range slightly more competitive when compared with its main rival, the BlackRock Consensus range, which has ongoing charges of 0.22 or 0.23 per cent. However, investors can purchase two of these funds more cheaply from Hargreaves Lansdown - BlackRock Consensus 100 (GB00BJL5C228) for 0.1 per cent and BlackRock Consensus 85 (GB00B08HD927) for 0.09 per cent.
Mark Dampier, head of research at Hargreaves Lansdown, thinks that Vanguard and BlackRock are likely to remain the most prominent providers of these types of all-in-one passive asset allocation funds as their large-scale business models help them keep costs very low.
Laith Khalaf, senior analyst at Hargreaves Lansdown, added: "Vanguard's latest reduction in charges shows the passive price war is alive and well, and moving on from plain vanilla tracker funds into other areas of the passive universe. Passive funds have gone from strength to strength in recent years and we expect a continued polarisation of the UK funds market, as investors plump for low-cost tracker funds at one end of the spectrum, or high-quality active funds at the other. The middle ground, inhabited by closet trackers, is likely to get increasingly squeezed as this trend develops. There are still billions of pounds stuck in mediocre active funds, which we can expect to gradually run down as investors wake up and smell the fact they can get better value elsewhere."
Figures from the Investment Association, the trade body that represents UK investment managers, show that passive funds make up 13.4 per cent of all funds under management, up from 11.5 per cent a year ago.
Active asset manager Baillie Gifford, meanwhile, has reduced the annual management fee for the class B shares of Baillie Gifford American Fund (GB0006061963) from 0.65 to 0.50 per cent.
The company said the fee cut is an attempt to boost the fund's competitiveness as some investors favour cheaper passive funds for getting exposure to US equities, because many active managers fail to consistently beat US equity indices.
James Budden, director of retail marketing and distribution at Baillie Gifford, said: "Received wisdom has it that active management doesn't work in the US market given its supposed efficiency. We happen to believe that the opposite can be true, and by cutting our fee on this fund we are giving ourselves and its investors a greater chance of beating the index over the long term."
Vanguard LifeStrategy Fund Performance*
| Fund | 1-Year Performance (1/1/2016 –31/12/2016) | 2-Year Performance (1/1/2015 –31/12/2016) | 3-Year Performance (1/1/2014 –31/12/2016) | 4-Year performance (1/1/2013 –31/12/2016) | 5-Year Performance (1/1/2012 –31/12/ 2016) |
|---|---|---|---|---|---|
| Vanguard LifeStrategy 20% Equity Fund | 10.39% | 5.62% | 6.99% | 5.83% | 5.92% |
| Vanguard LifeStrategy 40% Equity Fund | 14.35% | 7.92% | 8.49% | 8.02% | 7.99% |
| Vanguard LifeStrategy 60% Equity Fund | 18.27% | 10.12% | 9.87% | 10.18% | 10.00% |
| Vanguard LifeStrategy 80% Equity Fund | 22.15% | 12.22% | 11.16% | 12.34% | 11.99% |
| Vanguard LifeStrategy 100% Equity Fund | 26.07% | 14.22% | 12.44% | 14.48% | 13.94% |
Source: Vanguard and Morningstar Direct as at 31 December 2016.
*Performance figures include the reinvestment of all dividends and any capital gains distributions, but do not take account of the commissions and costs incurred in the issue and redemption of shares. Basis of fund performance NAV to NAV with gross income reinvested
