May
2017
Vanguard Investor targets DIY investors
DIY Investor
16 May 2017
US tracker fund giant Vanguard has launched its own direct to consumer investing platform – Vanguard Investor – and is pledged to shake up the UK investment market.
Vanguard has operated in the UK for eight years, offering a range of cheap index tracking funds and exchange traded funds (ETFs), primarily via IFAs; with a minimum investment of £100,000 they would not be considered mass market and it currently has £56 billion under management.
However, the new platform comes with a minimum investment of £500 allowing investors to choose a strategy that suits them with fees that are likely to send shock-waves though the sector.
As well as a low minimum investment, Vanguard Investor allows monthly contributions from just £100 and is designed to appeal to the growing army of DIY investors looking for cost-effective ways to deploy their savings in the stock market.
DIY Investor recently wrote about its range of Life Strategy funds (Simple DIY Investing with Vanguard Life Strategy Funds) and the company also offers a range of what it calls ‘all-in-one’ funds – target retirement funds, index funds, active funds, trackers and ETFs; investors can choose from over 65 funds on the new platform.
In announcing the launch Sean Hagerty, managing director of Vanguard Europe, said it would ‘lower the cost of investing’ in the UK with its platform charging an annual fee of 0.15% of the first £250,000 of an investment.
No platform fee applies to amounts over £250,000 meaning the charge is effectively capped at £375; investors will also pay an average annual ongoing charge figure (OCF) of 0.14% for Vanguard’s tracker funds, taking all-in costs to around 0.29%.
‘fees have not decreased enough based on the economies of scale achieved by the industry’
Vanguard’s launch comes following a hard-hitting report by the Financial Conduct Authority (FCA) last year in which it criticised active fund managers for over-charging customers and delivering below stock market returns:
‘This is why we are launching our new service – we want to offer investors the value for money they deserve. We aim to offer investors the highest value investment products and services available with an unwavering commitment to lowering the cost of investing in the UK,’ said Mr Hagerty.
‘Only recently, the FCA’s interim asset management market study report stressed asset managers’ obligation to act in the best interests of investors, including requiring the industry to show how it delivers value for money.
“It also highlighted that fees have not decreased enough based on the economies of scale achieved by the industry. Vanguard agrees with these conclusions’ he added.
The significance of Vanguard’s launch was not lost on the market; shares in the UK’s biggest DIY investment platform, Hargreaves Lansdown fell 4.7% to £13.78 as shareholders worried about the competitive threat it would pose.
Hargreaves’ Vantage platform charges 0.45% a year in addition to an average of 0.69% on the funds it sells, taking its total annual cost to around 1.1% – four times as much as the newcomer.
Shares in fund managers Jupiter, Schroders and Aberdeen also suffered as the City clearly believes Vanguard’s move will increase the pressure on their margins.
Vanguard was founded by John Bogle in 1975 and has grown to become one of the world’s biggest investment managers, with over $4 trillion (£3 trillion) under management; it is structured like a credit union or mutual which means that the company is owned by the investors in its funds.
By not having to pay dividends to shareholders or big wages to active fund managers, Vanguard has been able consistently cut the charges on its index-tracking funds as they benefit from economies of scale; its cheapest UK fund is a FTSE 100 ETF tracker which charges just 0.06%, its most expensive a Global Emerging Markets fund at 0.8%.
Vanguard’s Life Strategy range of funds invest in a mix of shares and bonds with riskier funds having a higher proportion of equities; OCF of these funds reduced to 0.22% as it recently topped £5 billion of investment which coupled with an annual account fee of 0.15% brings total costs in at a very competitive 0.37%.
Investors can invest in Vanguard’s funds through an ISA, JISA and general investment account; the company plans to add SIPPs soon.
According to Vanguard, an ISA investor with £10,000 would pay a total of £23 a year to invest in its FTSE UK All Share Index; according to consultancy the Platforum this is less than half of the average of rival investment websites, with the most expensive charging £128 a year.
Hargreaves Lansdown has played down the competitive threat, saying that Vanguard would not be able to offer the ‘one-stop shop’ that it does as it is restricted to offering its own funds; in addition to its own products Hargreaves offers literally thousands of third-party investments and believes that the inability to have all of your assets in one place is Vanguard’s Achilles heel.
However, Vanguard’s appears a compelling proposition for those that want to have some control over their investments but without full blown DIY stock picking, and with ultra low costs that will reduce in line with the success of the funds, they are likely to prove popular.
Given that at least one of the new crop of robo-advisers invests solely in Vanguard Life Strategy funds, a DIY portfolio could deliver similar performance to the robo, but even more cheaply – and as DIY investors know, cost is one of the key factors in a successful investment strategy.
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