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Index-tracker costs give ETFs a run for their money

index_trackersCharges for traditional index-tracking funds have steadily decreased over the past four years and are in some cases lower than for ETFs, says a research house.

Fitz Partners says that since 2016, equity ETFs have seen a 27% fall in their ongoing charges figures (OCFs), whilst charges applied to ‘clean’ share classes of index-tracking mutual funds (share classes with no trailer commissions to financial advisers) have dropped by 19%. 

On average, equity ETFs have remained more expensive than comparable index-tracking equity mutual funds with clean share classes.

Hugues Gillibert, Fitz Partners chief executive, said: “In our industry, when we describe fee reduction, it is often assumed that active fund products are those under most pressure, but our latest fee data show that index-trackers have also been following the same trend. 

“More interestingly, this drop in fees has occurred independent to whether the passive strategies are offered through ETFs or mutual funds’ clean classes.”

Comparing emerging market ETFs with the clean share class offering of index-tracker mutual funds, ETF products were found on average to be nearly 40% more expensive. For global equity products, ETFs were 30% more expensive, the research shows. 

Gillibert added: “ETFs are often considered as a cheaper option to active funds but our research shows that when it comes to comparing passive ETFs against passive mutual funds then the picture becomes more varied.”

Enhanced trackers or “complex” ETF strategies were excluded from the research. 

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