Vanguard has fired the latest shot in the active price war after dropping fees across four of its UK-domiciled active funds, but one fund selector is wary this could spark a race to the bottom on pricing.
The group said on Wednesday it is reducing the ongoing charges figure (OCF) on the Vanguard Global Equity, Vanguard Global Equity Income and Vanguard Global Balanced funds from 0.6% to 0.48%, effective immediately.
The Vanguard Global Emerging Market fund OCF has also been lowered from 0.80% to 0.78%.
A Vanguard spokesperson said the move is “part of our ongoing commitment to lower the cost of investing in the UK, to give investors the best chance of investment success”.
Vanguard head of UK distribution Robyn Laidlaw (pictured) added: “We are pleased to reduce the price of our UK active fund range. Although widely known as a pioneer in index fund investing, active management has been a part of Vanguard’s approach since our founding in 1975.”
The range was launched in 2016 and passed its three-year anniversary at the end of May.
Fund range with sub-advisers and revised OCF
Avoiding a race to the bottom
Willis Owen head of personal investing Adrian Lowcock said Vanguard’s price cut is further evidence of the battle over passive fees continuing its charge into the active space.
Vanguard’s announcement comes in the same week that M&G announced a tiered charging structure for funds with more than £1bn assets under management. From 1 August the group is applying a discount of 0.02% to annual charge for every £1bn of a fund’s net asset value, up until a cap of 0.12%.
M&G is also rolling all charges that make up the funds’ OCF, such as custody charges and administration fees, into a single annual charge for all funds except property funds.
Lowcock said Vanguard’s reputation in the UK as a passive player should afford it an opportunity to grasp market share with its active range.
He added: “We will probably see more of this. We saw Fidelity introduce their fulcrum fee a couple of years ago, so active managers are looking for ways to pass on cost savings to investors.”
However, Lowcock said he hopes this does not mark the start of a race to the bottom because while there are cost savings to be made in active, there is the potential for false economies.
“You don’t want an active manager cutting back on risk management or research facilities because performance is everything and risk management is an important long-term factor for the sustainability of that performance,” he said.
According to FE data, on a total return basis the Vanguard Global Equity fund has outperformed the IA Global sector over three years, returning 57.28% versus the sector’s 51.35%. But over one year it has fallen short, returning 1.38% versus the sector’s 5.38%.
Similarly, the Global Equity Income fund has outperformed the IA Global Equity Income sector over three years, but not over the past year. It has returned 44.66% over three years against the sector’s 40.94%, and 1.47% over one year compared with 7.18% for the sector.
The Global Balanced fund has outperformed the IA’s Mixed Investment 40-85% Shares sector over one and three years, returning 8.4% and 37.13% respectively, versus the sector’s 1.97% and 28.75%.