Vanguard, the third-largest U.S. issuer, is looking to bring its low-cost approach to the U.K.
The Vanguard Group has found that the cheapest quartile of U.K.-based funds outperformed the most expensive quartile in nine of 11 significant categories over the past 10 years, reports Chris Flood for Financial Times.
Vanguard found that returns have been the most pronounced when comparing emerging market funds – the average cheap fund returned 12% per year after fees, or 3.1 percentage points more than the average high-fee fund.
“Investors cannot control the markets but they can control what they pay,” Peter Westaway, Vanguard’s head of the investment strategy group in Europe, said in the article. “Low-cost funds have a greater chance of delivering investment success.”
The high fees associated with active management can eat away at overall investment returns.
“This is no surprise,” Gina Miller, co-founder of SCM Private, said in the article. “Costs are the biggest eroder of returns so the cheaper the fund, the more of the returns will end up in investors’ pockets.”
Moreover, Miller warns against so-called closet trackers, or active managers who charge high fees for basically following a passive indexing strategy.
Along with factoring in the fees, more investors are turning to beta-index ETFs as many actively managed funds fall short of their benchmarks. According to the latest S&P Indices Versus Active Funds, most active managers fail to produce alpha over the long term three- and five-year horizons. [Poor SPIVA Scorecard Highlights Appeal of Index ETFs]
For more information on ETFs, visit our ETF 101 category.
Max Chen contributed to this article.