Vanguard slams low-cost rivals over charges

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Vanguard claims that low-cost funds that charge extra for tactical rebalancing add little value for clients.

In June, Vanguard launched five risk-rated multi-asset funds that use index trackers to a pre-set asset allocation, rather than tactical rebalancing.

The annual charge on the funds range from 0.29% to 0.33%, with no initial charge.

Nick Blake, the head of sales at Vanguard, says: “Other competitors are loading a margin for tactical rebalancing into their products. Our view is that it is difficult to get right consistently and add value over the long term.”

HSBC is the latest entrant into the low-cost area with the launch this month of three risk-rated funds, which have an annual charge of 0.5% and no initial charge.

Phil Reid, the head of external distribution at HSBC, says: “If you get the asset allocation right, it has been shown that this will drive the most returns, so we think that our offering is competitive.

“You can get big distortions if you are not rebalancing. IFAs are using our funds as building blocks, so we do need to take a view in terms of asset allocation.”

James Norton, the director at Evolve Financial Planning, says: “HSBC will get some asset allocation decisions right and others wrong but over the long term the cost will outweigh any benefit delivered.”

In February, JP Morgan launched a low-cost fund with a maximum total expense ratio of 0.55%. Investors pay for stock selection, which is included in the annual charge.

Schroders launched three low-cost funds this year with capped TERs of between 0.4 and 0.5%. Schroders makes tactical asset allocation decisions and the cost is included in the AMC.

Fidelity launched three low-cost funds this month. The commission-free share class has a TER of 0.67, which includes the cost of active asset allocation.

JP Morgan declined to comment and Schroders and Fidelity were unavailable to comment.

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Readers' comments (3)

  • Vanguard are in absolutely no position to slam any other passive provider when it comes to costs. This article states that their costs on their Life Strategy funds are between 0.29% and 0.33%, with no initial charge. although that is true, they are not the only charges. Unlike most other passive managers, including HSBC, Vanguard charge a preset dilution levy of between 0.22% & 0.32% on these and some of their other funds. If you embrace a rebalancing strategy for your clients with Vanguard funds they will be paying these additional costs everytime you rebalance which could make them more expensive than some of their competitors. Do yourself a favour and have a look at the fund charges on Vanguard's website. The only reason why they say that their AMC=TER is because there are simply levying their addtional fund costs in another way. This, in my mind makes a complete mockery of the term TOTAL EXPENSE RATIO! I take serious issue as to how Vanguard are marketing their funds: Low Cost and Transparent. Indeed. Low Cost, maybe, transparent.........well what do you think?

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  • After all that's happened, do people really still believe this 'asset allocation is all you need worry about' nonsense? THAT'S NOT WHAT THEY SAID!!!

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  • As an investor I'm not convinced about the merits of rebalancing per se and certainly don';t see this as an IFA function. If rebalancing is to be done at all I would prefer to have this done by a large fund house at minimal cost. As adviser costs are driven ever higher by the Regulator I can see the need to be seen to be doing something but all the same try to act like a fund manager does not impress.

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