Research shows investors gravitating to low-cost

Research shows investors gravitating to low-cost

Investors have been gravitating towards low-cost, fixed-income tracker funds, research from Vanguard Asset Management has found.

In the five years ending in December 2013, the six-page white paper, Costs Matter: Are UK Investors Voting with their Feet?, found that people were heading towards low-cost funds that could provide them with a fixed income.

The paper showed that, for low-cost fixed-income funds, the total inflow across the past five years was £118bn. Equity-based low-cost funds attracted £129bn of total inflows.

Article continues after advert

Peter Westaway, head of Vanguard’s investment strategy group in Europe, said: “The findings show that investors are clearly voting for lower costs with their feet.”

He said although the total cost of investing has decreased for passive funds, there had not been a significant across-the-board decline in the cost of investing in actively-managed funds.

Mr Westaway added: “Minimising costs means investors get to keep more of their returns and this research suggests the trend to low-cost investing is set to continue.”

The white paper said this may be because of the growing popularity of index funds, particularly index-based ETFs, and the effect of the RDR in putting pressure on costs to go down for investors.

Adviser view

Duncan Glassey of Edinburgh-based Wealthflow said: “I think the move to lower-cost passives it is driven by good quality financial advisers who want to do the right thing by the client and know that low-cost fund managers means more money for the client.”