Vanguard shifts passives price war to multi-asset

Vanguard shifts passives price war to multi-asset

Vanguard’s latest fee cuts have been hailed as a sign that the passive price war is spreading beyond conventional trackers, with some suggesting providers are getting ever closer to offering loss-leading products.

The fund house’s five-strong LifeStrategy range directly rivals BlackRock’s similar Consensus products, and has now leapfrogged its rival to become the cheaper option.

BlackRock’s £8.9bn range has ongoing charges ranging from 0.22 per cent to 0.25 per cent. Vanguard committed last week to bring the charges on its own £5.4bn range down to 0.22 per cent.

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The move is the latest example of passive providers competing on price in a bid to attract assets – a strategy being led by Vanguard.

Hargreaves Lansdown senior analyst Laith Khalaf said Vanguard’s move was noteworthy because it shifted the price war away from single-asset-class products.

He said: “Vanguard’s latest reduction shows the passive price war is alive and well, and is moving on from plain vanilla tracker funds into other areas of the passive universe.”

7IM’s Justin Urquhart-Stewart said he thought it was a matter of time until providers began offering loss-leading, or even free, tracker exposure in a bid to attract clients to other products.

“You would need bucket-loads of assets to do this, of course. Vanguard has also put more pressure on [closet trackers] and created cheaper building blocks, which is a good thing for the industry,” he added.

Ryan Hughes, head of fund selection at AJ Bell, said Vanguard’s move was solidifying established players’ competitive advantage over newer entrants to the passive market.

“Passive providers will have to see how they can compete, and this will be an issue for all who are more expensive. We knew we would see price pressures as this is still a scale game on wafer-thin margins. The firms struggling will have to decide whether they can compete,” he said.

The LifeStrategy range offers five strategies, each of which has an equity allocation ranging from 20 per cent to 100 per cent. The models use static asset allocation and bulk rebalancing in order to keep trading costs low. 

Vanguard said its latest price cut was a sign of it passing economies of scale on to investors, assets under management in the range having now passed £5bn.

It follows two previous fee cuts in recent years. In 2015, the company removed pre-set dilution charges on the funds which invest in Vanguard trackers. This followed a separate fee cut in 2014.

Mr Hughes said Vanguard’s move may even add regulatory pressure to more expensive operators.

The FCA’s recent interim market study focused its criticism on active fees, but did pinpoint elevated asset management profits as an area of concern.

“[More expensive firms] will be asked questions, not just from clients, but from the regulator,” he said.