Stocks Section

Tracker Funds Can Now Be Run For Just 0.1% Costs

September 2005

Fidelity has made a major move in the world of Tracker Funds by cutting charges to an unbelievable 0.1%. But other charges levied actually boost the TER (Total Expenses Ratio) to 0.3%, still this deal cannot be beaten by any other Tracker Fund.

Why The Fund Manager Is Not Important With Tracker Funds

A Tracker fund is a very simple vehicle. The fund itself does nothing more than invest in all the constituents of an index in their relative weightings.

Therefore a Tracker on the FTSE 100 index will almost perfectly mimic the performance of the index. If the FTSE goes up 8.7% then the Tracker will also go up by 8.7% give or take a few 0.1%s, and of course it's the same for a downside move.

This is why the manager is not relevant at all, you're not paying for any skill so the best way to invest in Tracker funds is to do so via the funds that offer the cheapest management charges. If you don't and you invest in a Tracker that charges say 1% or more then plain and simple you're being taken by a ride whatever the reasons that the fund management firm will spin you.

Tracker funds that charge 1% or higher are a perfect example of how many financial institutions operate. They hope, in fact they know that the majority won't understand what they're buying and therefore will be quiet oblivious to high charges.

Stay Well Away From These Types of Tracker Funds

• Any Tracker fund that charges a 'load' (an upfront fee to allow you to invest in a fund)
• For example Eagle Start UK Tracker charges a 5.5% load and St. James's Place tracker charges 3.75%, quite frankly those fees are an absolute disgrace. There are also many others that charge a load so beware
• Be very wary of any tracker that charges an annual fee of more than 0.5%, Trackers are the cheapest and easiest funds to manage so don't even listen to the reasons the fund management companies gives you, talk to Fidelity instead

Cynics Say It's Nothing But A Marketing Move To Cross Sell

It's very likely that Fidelity has made this move to create a loss leader so as to cross sell their other more expensive funds to the tracker investors. This makes a lot of sense and in the marketing world it's hardly a revolutionary move.

Still, it doesn't matter because investors in the Tracker Fund don't have to buy anything else that Fidelity tries to sell them. Just be aware that you're most probably going to be marketed aggressively as American companies don't know any other way to do business.

Another Way To Invest With Lower Management Charges

Fund supermarkets are websites where you can buy hundreds of different investment funds including Trackers without the crazy charges levied if you bought the fund through an advisor. Using a Fund Supermarket it's possible to buy a fund with a load of say 1% when another investor buys the same fund with a 5% load.

In effect Fund Supermarkets are major money savers especially if you know where you want to invest your money. Check out the following;

Fidelity's move is a great one all Tracker Fund or would be Tracker fund investors. Those who already have money in Trackers should seriously consider moving money towards Fidelity, especially if they're being charged overly high fees.

Some also predict that Fidelity's move is the start of a price war for the fund management companies. It starts with trackers and will then move on towards actively managed funds. If so this is great news for the average investor because for far too long he or she has been nothing more that financial profit-fodder for the large fund management firms.

Of course, for those who do their research into what they're buying, how charges are levied and who are the managers/fund management companies then they're always going to be the ones getting the far better deal for their investments. The Fund Supermarkets are an excellent place to start.

Good luck with your Trackers!

See Also

Fidelity Website