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.