Fund fees hit all-time lows for British investors

Fund fees for British investors hit alltime lows last year as the rise of “passive” investing and a crackdown by the City watchdog drove down costs.

Charges for funds investing in the major global stock markets have fallen 20pc since 2013, according to financial data group Morningstar, to an average of 1pc, down from 1.27pc eight years ago.

Fees on cheaper passive funds, which track stock market indices, have fallen more steeply, dropping 40pc since 2013. “Tracker” funds investing in global, British, American and emerging market stocks now cost an average of 0.28pc, down from 0.46pc.

Costs have more than halved on passive funds investing in global and American stock markets, which now charge an average of 0.21pc and 0.1pc respectively, over the past eight years.

Dimitar Boyadzhiev, of Morningstar, said tracker funds’ cheaper charges were forcing managers of active funds, who pick stocks for savers, to cut their costs.

“UK investors enjoyed all- time low investment costs as fund charges continued to decline in 2020. Active fund providers were under inceasing pressure to lower their fees as the pricing of passive funds hit rock bottom,” he said.

Last year, tracker funds attracted £33bn of the £36bn poured into UKbased funds, according to Morningstar.

Pressure from the Financial Conduct Authority, which last year required fund managers to publish reports justifying the value for money they provided, has also led to a lowering of costs. Last week, fund group M&G cut charges on 45 of its funds following a review sparked by its value assessment last year.

The cost of active funds investing in global, American, British, European and emerging market stocks now stands at an average of 1.07pc, down from 1.3pc in 2013.

However, Robin Powell of the Evidence-Based Investor blog said they should fall much further. He added that 1pc a year was “still a huge proportion of your assets” to be spending each year.

“Index funds are typically four or five times cheaper,” he said.