UK banks such as Halifax and Lloyds continue to charge clients over 1% for FTSE 100 index funds despite ETFs offering similar exposure carrying costs of under 0.10%.
Despite the UK being Europe’s second-largest market for ETFs after Germany, products such as the $1.6bn Halifax UK FTSE 100 Index Tracking Fund C and the $90m Formerly Lloyds TSB FTSE 100 Tracker Pension Fund still exist, charging respective fees as high as 1.07% and 1%, while the latter also carries a bid-ask spread of 5%.
Not only are these fees higher than the average total expense ratio (TER) of 0.26% for European-listed ETFs – which includes active and thematic products – but orders of magnitude above the largest equivalent Europe-listed ETF, the $14bn iShares Core FTSE 100 UCITS ETF (ISF), which charges just 0.07%.
Halifax’s product launched in 1999 while Lloyds’ pension fund debuted as far back as 1995. While both have the hallmarks of products from a bygone era of investment, BlackRock’s ISF launched in 2000, showing banks have no excuse for not moving with the times.
Also worth noting is while about 20% of all assets in Europe are passively managed, there is massive regional dispersion, with passives claiming 49% of all investments in Switzerland versus 25% in the UK, Bloomberg Intelligence found.
Given exchange-traded products (ETPs) make up only 10% of assets in Europe, it might be fair to assume this number is even lower in the UK – a fact that needs to change if consumers hope to find value for money in their investments.
Looking across the pond, the US remains the dominant force in passives globally, making up $12trn of passive assets under management (AUM). This is equivalent to 40% of all the nation’s invested assets – with 17% of all US investments in ETFs, according to data from Bloomberg Intelligence.
Part of this includes assets in passive funds from banks, such as $1.6bn in State Street S&P 500 Index Fund – Class N (SVSPX) and $1.5bn in the JP Morgan Equity Index Fund I (HLEIX), both of which mirror the popular S&P 500 index while charging net expense ratios of 0.16% and 0.20%, respectively.
While both fees are more reasonable than trackers from UK counterparts and within touching distance of the 0.19% asset-weighted average for US ETF TERs, the State Street Global Advisors (SSGA) index fund carries a fee almost twice as high as the 0.09% charged by its flagship ETF, the $394.4bn SPDR S&P 500 ETF Trust (SPY).
Meanwhile, both fees are at least five times as high as the 0.03% attached to BlackRock’s $318.9bn iShares Core S&P 500 ETF (IVV) – not to mention the 0% headline TERs charged by alternatives provided by SoFi’s S&P 500 ETFs.