BlackRock is cutting the ongoing charge on five of its tracker funds from 11 August as trackers rise in popularity. Index funds represent 12 per cent of all UK funds under management, almost double the level of 10 years ago, according to figures from the Investment Association.
| Fund | Current ongoing charge (%) | New estimated ongoing charge (%) |
| BlackRock 100 UK Equity Tracker | 0.16 | 0.07 |
| BlackRock UK Equity Tracker | 0.16 | 0.07 |
| BlackRock US Equity Tracker | 0.16 | 0.08 |
| BlackRock North American Equity Tracker | 0.16 | 0.08 |
| BlackRock Continental European Equity Tracker | 0.17 | 0.1 |
Source: BlackRock
There are still cheaper options than the BlackRock trackers. Legal & General's UK and US tracker funds have ongoing charges of 0.06 per cent and its Europe tracker 0.09 per cent if bought via Hargreaves Lansdown.
Some exchange traded funds (ETFs) are equally as competitive or cheaper than the BlackRock range. The following ETFs, giving exposure to UK or US equities, all have ongoing charges of 0.07 per cent:
iShares Core FTSE 100 UCITS ETF (ISF)
iShares FTSE 100 UCITS ETF (CUKX)
db X-trackers MSCI USA Index UCITS ETF (XDUS)
iShares Core S&P 500 UCITS ETF (CSP1)
Vanguard S&P 500 UCITS ETF (VUSA)
For US equity exposure Source S&P 500 UCITS ETF (SPXP) is the cheapest of all at 0.05 per cent.
For Europe, Source EURO STOXX 50 UCITS ETF (SX5S) is available at 0.05 per cent and db X-trackers Euro Stoxx 50 UCITS ETF (XESX) at 0.09 per cent, while iShares Core EURO STOXX 50 UCITS ETF (CS51) costs 0.1 per cent.
With a number of platforms you have to pay brokerage fees for ETF trades whereas tracker funds typically do not incur that. Hargreaves Lansdown, for example, has monthly charges for holding funds, amounting to 0.45 per cent a year for the first £250,000. For ETFs, the company levies dealing charges of £11.95 per trade. If you hold ETFs within an individual savings account (Isa) or self-invested personal pension (Sipp), there will be annual management fees on top of the dealing charges..
If you invest small amounts on a regular monthly basis, with this type of charging model tracker funds could work out more cost effective than ETFs.
However, the charging model varies from platform to platform so check this first. Alliance Trust Savings, for example, charges for transactions in all types of investments though has discounts for regular buying. It charges flat fees for holding an account on the platform regardless of the type of investments held in them.
