Fidelity slashes fund charge

By ANDREW OXLADE, COLUMNIST
Updated: 09:09 EST, 21 September 2005

FUND giant Fidelity has challenged the investment industry by slashing the annual charge on one of its key funds to just 0.1%.

Fidelity, the UK's largest mutual fund manager, has made the bold move on its Fidelity MoneyBuilder UK Index fund, which aims to mirror the performance of the FTSE All-Share index.

Funds track stock markets using automated systems rather than relying on well-paid managers to pick stocks so charges tend to be lower.

However, Fidelity claims some firms are ripping off investors. Richard Wastcoat, Fidelity's UK managing director, said: 'Index funds are commodity products and should be bought primarily on price. There is no reason for fund companies to charge upwards of 1% on these funds, let alone levy an initial charge as well.'

The most well known offender is the giant Virgin fund, which charges 1% a year on £2bn of investors' money. The fund, which ranks in the top five most widely-held among This is Money Power Portfolio users, was among the first index trackers to be offered to small investors in the late Nineties, attracting huge interest when the stock market was booming.

Providers have since launched far cheaper UK trackers. M&G, for example, charges 0.3% a year while independent financial adviser Hargreaves Lansdown offers an HSBC FTSE All-Share tracker for a 0.25% yearly fee.

Fitzrovia, a fund analyst, measures the entire cost of investing with a total expense ratio (TER). The ratio takes into account other costs of running fund not included in the annual fee.

Fitzrovia says the cheapest trackers are Abbey National Stockmarket 100 Tracker Growth (0.35%), F&C FTSE All-Share Tracker (0.35%), Liontrust Top 100 (0.39%), M&G (0.49%). Fidelity says its tracker TER is now the lowest on the market at 0.3%.

However, Hargreaves Lansdown also claims their TER is the lowest. HL repackages an HSBC tracker that is usually only available to City insitutions. The company claims the fund carries no other additional charges because of the way it is packaged, so the TER matches the annual fee of 0.25% - cheaper than Fidelity's 0.3%, although this is not validated by a third party analyst such as Fitzrovia.

'We welcome this move by Fidelity as its good for the industry,' said Ben Yearsley of Hargreaves Lansdown. 'Most trackers, at 1%, are four times more expensive than they should be and this helps to highlight that.'

An argument continues to rage in the fund management industry about the widsom of trackers vs 'actively managed' funds. The low fees on trackers compare to 'active' funds run by managers which typically charge 1.5% a year, plus a fee of between 1% and 5% on any new money invested.