EDITOR'S LETTERMerryn Somerset Webb
Winning the costs war
We are beginning to be pleased with the way some things are going in the financial industry. The Retail Distribution Review, along with campaigns from us and other organisations for transparent and low-charging structures, is slowly bringing down costs.
If you want to invest purely in tracker funds (in which the manager tracks the market as a whole rather than trying to add value by picking the best stocks), you can now do so with Fidelity for just 0.07%. That’s not bad at all.
Meanwhile, there is something of a backlash against fund managers whose funds behave like trackers, but charge as if they were wildly successful actively managed funds.
In the US, several pension funds are considering class actions to recover fees paid to companies that have sold them ‘benchmark huggers’. In the UK, says the Financial Times, a large law firm is in talks with “investors interested in taking legal action after buying index-hugging funds that posed as active products”.
These cases may not succeed – but at least they are a warning to the 40%-odd UK funds who fall into the index-hugging category, that investors are no longer tolerating the culture of gratuitous over-charging.
So, here’s the big question. If you can buy a tracker for a near-negligible amount of money, is there any point in buying an active fund?
• Read the full editor’s letter here: Winning the costs war