Hargreaves Lansdown has moved 13 index tracker funds into its Wealth 150 plus list in an attempt to facilitate comparison with active funds across sectors.
The move marks the first time passive funds are part of the list since its creation in 2003. The funds have until now been included on the firm’s Core Tracker List of favourite tracker funds.
Similarly to their active funds within the Wealth 150 list, Hargreaves Landsdown has negotiated lower fees for the tracker funds which are available for on average one third (32 per cent) less than their standard price.
For example, the BlackRock Corporate Bond Tracker, which has a standard OCF of 0.17 per cent, will be 0.12 per cent for Hargreaves Lansdown clients.
The Legal & General UK Index fund is available for an annual cost of 0.06 per cent, down from 0.10 per cent.
Hargreaves Lansdown head of research Mark Dampier says: “We constantly assess the funds on the list for quality and value, and will continue to push hard to reduce fund charges for our clients.”
Dampier says the average fund fees on the Wealth 150 Plus are 23 per cent cheaper than the price paid by the market at large.
Other than costs, the firm also opts for funds that use broad and diversified indices, using full replication as their tracking methodology, meaning that the manager holds all the stocks or bonds in an index.
Over last five years, the number of Hargreaves Lansdown clients investing into passive fund almost doubled from 6.1 per cent in 2011 to 11.2 per cent in 2016.
Dampier says: “Index trackers have become an important part of the investor’s toolkit, and while the industry ties itself in knots arguing the toss for active or passive, our clients are using both as part of a common sense approach to portfolio construction.”
“We expect a continued polarisation of the UK funds market, with monies flowing into high quality active funds at one end of the spectrum, and low cost passives at the other.
“The middle ground, inhabited by closet trackers, will become increasingly squeezed out of the picture, as investors continue to vote with their feet, and seek out real value in both active and passive funds.”