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The cheapest index trackers

Ed Bowsher
by Lovemoney Staff Ed Bowsher on 05 December 2012  |  Comments 8 comments

We look at the funds that offer the cheapest way to invest in the stock market.

The cheapest index trackers

At Lovemoney we’ve said many times that index trackers are the best way to invest in the stock market. You can read why in Six great reasons to choose an index tracker.

That said, not all tracker funds are equal. The charges for different tracker funds can vary widely.

So, to make life easier for you, I’ve done some research to find the UK’s cheapest index tracker funds.

Let’s start with funds that track the UK’s FTSE 100 index (‘Footsie’). Remember the Footsie comprises the 100 largest companies on the London stock market, so you’ll be investing in big household names such as HSBC, Vodafone and Tesco.  

Cheapest FTSE 100 index trackers

FTSE 100 Tracker

Total Expense Ratio (TER)


HSBC FTSE 100 index


£2 monthly fee if you buy via Hargreaves Lansdown (HL)

Santander Stockmarket 100 Tracker Growth Unit Trust



Liontrust FTSE 100 Tracker


£2 monthly fee at HL

L&G UK 100 Index Trust


£2 monthly fee at HL

Let’s say you invested £10,000 in the HSBC FTSE 100 index fund, and the Footsie index then rose by 10% over the following year. Your investment in the HSBC FTSE 100 fund should rise by roughly 10% minus charges of 0.27%. You’d also earn extra money on top of that gain from dividends.

With higher-charging tracker funds, you won’t do as well because you’ll have to pay more money to the fund management company.

Better than the Footsie

I’d normally expect a Footise tracker fund to deliver a pretty decent performance over ten years or longer, but I don’t think a Footsie tracker is the best option for most people. That’s because the Footsie index is rather concentrated. In other words, a large chunk of your money will end up in a small number of giant companies. That makes your investment riskier than it need be.

The ten largest companies in the Footsie comprise 45% of the index’s value, and more than 50% of the Footsie’s value is made up of companies that operate in just three sectors – Oil & Resources, Banking and Health.

If you want a bit more diversification, you could invest in the FTSE All-share index which comprises 602 companies rather than a hundred.

Here are the cheapest All-Share trackers:

Cheapest FTSE All-Share trackers

UK Tracker Fund

Total Expense Ratio (TER)


SWIP FTSE All Share Index


You can only get this fund at 0.1% on the Hargreaves Lansdown (HL) platform. But you’ll have to pay a £2 monthly fee to HL.

Vanguard FTSE UK Index


Can buy on HL, Bestinvest, Alliance Trust and Sippdeal. Have to pay 0.5% ‘dilution fee’ when you buy in. Also £2 monthly fee at HL



£2 monthly fee at HL

Fidelity MoneyBuilder UK Index


£2 monthly fee at HL

F&C All Share Tracker


£2 monthly fee at HL

M&G Index Tracker


£2 monthly fee at HL

Black Rock UK Equity Tracker


No monthly fee at HL

Legal & General UK Index


£2 monthly fee at HL

You’ll see that the SWIP FTSE All Share index fund is incredibly cheap at 0.1%. However, you can only get such a low rate if you buy the fund via the Hargreaves Lansdown investment platform. And Hargreaves Landown will unfortunately charge you a £2 monthly fee to hold this fund.

That £2 fee is very cheap if you’re able to make a fairly large investment in the fund. It’s equivalent to a 0.12% annual charge if you invest £20,000. But if you only invest £2,000, the equivalent percentage charge is 1.2%. Way too high!

Vanguard’s FTSE All-share tracker is also very cheap at 0.15% and you can buy it on several online investment platforms, not just Hargreaves Lansdown.

That said, Vanguard charges a one-off 0.5% ‘dilution fee’ when you first invest in the fund. If you think you might sell your investment quite quickly, don’t go for Vanguard.

In many ways, the HSBC FTSE All-Share funds and the Fidelity MoneyBuilder UK index funds are more attractive. They have low annual charges – 0.27% and 0.3% respectively – and there is no dilution fee.

More diversification

As I said earlier, the FTSE All-share index is more diverse than the Footsie, but it’s arguably still not diverse enough.

The ten largest companies in the index comprise 38% of the index’s value, and the 100 large companies – the Footsie - actually comprise 85% of the FTSE All-share’s value.

One solution to this lack of diversity to invest in the FTSE-250 index as well as the All-share index. The FTSE -250 index comprises the 250 largest companies on the London stock market after the 100 shares in the Footsie.

The great thing about the FTSE 250 index is that a lot of the companies are in different business areas from the Footsie giants, so buying a FTSE 250 tracker as well as an All-Share tracker really diversifies your portfolio.

I’m only aware of a couple of 250 tracker funds, but they’re both cheap and well worth considering.

Other UK trackers

Name of fund



HSBC FTSE 250 Index Fund


£2 monthly fee at HL

Black Rock Mid Cap UK Equity Tracker Fund


No monthly fee at HL

ETFs and abroad

I’ve not had space in this article to look at ETFs (exchange traded funds) which are similar to index tracker funds and provide another cheap way to invest in the stock market. I’ll return to them on another day. The same goes for overseas index trackers – investing in foreign stock markets is another great way to diversify your portfolio.

If you want to compare charges for both UK and US tracker funds, check out Fidelity’s clever ‘Compareyourtracker’ tool.

More on index trackers and investing:

83% of managed funds are poor investments

The best argument against trackers

Index tracker sales jump

Six great reasons to choose an index tracker

A great way to invest

The secret to becoming rich

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Comments (8)

  • nikwilson
    Love rating 0
    nikwilson said

    More "advice" to invest into passive funds without considering any active management and the yield prouced by those underlying companies that are being tracked being lost. Where is the proof that this is "the best way to invest in the stockmarket"? Do you even consider Ed, the risk that someone is prepared to take when making that statement.

    Agreed that once the decison to buy a tracker fund has been made, that charges are important and the need to find out exactly what is being tracked.

    Report on 05 December 2012  |  Love thisLove  0 loves
  • Ed Bowsher
    Love rating 80
    Ed Bowsher said

    Hi Nik,

    The yield from the underlying companies isn't lost. It's paid out in income by your tracker fund or you take accumulation units.

    The article isn't about why trackers are best. It's about which funds are cheapest. I don't have space to cover both issues in one article.

    But I've linked to two other articles on the site that do explain why trackers are best. I link to one article in the second paragraph of the above article: Six great reasons to choose an index tracker.

    I link to another article on the topic at the bottom: 83% of managed funds are poor investments.


    Report on 05 December 2012  |  Love thisLove  0 loves
  • nikwilson
    Love rating 0
    nikwilson said

    Thank you Ed for your reply

    Report on 05 December 2012  |  Love thisLove  0 loves
  • tuttogallo
    Love rating 99
    tuttogallo said

    Just to remind readers that the Total Expense Ration (TER) is actually nothing of the sort. It is simply the part of the charges which is declared.

    There are other invisble costs and charges: survival bias, buying and selling costs and many others which are not included in TER. Any funds invested in managed funds are constanly being skimmed. This explains why a) the fund managers drive expensive cars, send their children to public schools and live in expensive houses in Surrey and b) the funds never achieve their projected growth. This truly is the City's Dirty Secret.

    They also rent your shares out to short sellers and pocket the fees.

    My advice is to stay away from funds and the stock market unless you have the time and the courage to pick your own stocks

    Report on 08 December 2012  |  Love thisLove  0 loves
  • Ed Bowsher
    Love rating 80
    Ed Bowsher said

    Hi Tuttogallo,

    You're right, the TER doesn't tell the whole story, but it's a more useful statistic than the Annual Management Charge (AMC) and is the most useful stat you can get.

    Running your own investment portfolio brings its own costs. You have to pay your own dealing charges and stamp duty, and you may also have to pay an annual fee if you're investing via a platform.

    I'm happy to buy individual shares, but I have the time and the interest to do this. I believe many folk are better off using a tracker.

    As an example, let's imagine a reader is reading this article who has £5000 to spare and wishes to invest that money in the stock market. The reader has never invested in the stock market before, has little knowledge and has no great desire to learn about the stock market.

    The reader could do a small amount of research and invest in five stocks (£1000 each), but I think it would make more sense for that person to invest in a tracker. The reader will get more diversification and the costs won't be horrendously high. My understanding is that passive funds typically trade less in their portfolio than your average actively managed fund.

    Yes, too many actively funds have charged fees that were and are far too high. Many actively managed funds are basically a rip off. That's why I've always said that passive funds/trackers are usually best.

    I think they're a sensible way to take advantage of the stock market's propensity to outperform other assets over the long-term. With trackers, your costs will be higher than the TER, but they shouldn't be dramatically higher, and you won't be contributing to inflated salaries for not very good fund managers.


    Report on 10 December 2012  |  Love thisLove  0 loves
  • Geoff Carse
    Love rating 7
    Geoff Carse said

    Thanks Ed,

    Articles like these are the reason I subscribe to Lovemoney.

    For the past 6 years I've drip-fed my money into a L&G ISA, dividing my cash equally between the Footsie 100 and the All Share. Now it seems I need to start thinking about casting my net a little further and wider, and that's where this, and your follow-up article on global trackers are proving invaluable.

    Thanks again


    Report on 28 December 2012  |  Love thisLove  0 loves
  • Ed Bowsher
    Love rating 80
    Ed Bowsher said

    Hi Geoff,

    Thank you for your kind comment. It's always good to hear from readers who like our articles.


    Report on 03 January 2013  |  Love thisLove  0 loves
  • peterbraney
    Love rating 0
    peterbraney said

    I have read your article and the comments with great interest. I fall into the category of "semi-illiterate" potential investor to whom any charges are an anathema!

    I only want to invest a small amount (£100) for my grandson, who is 1 year old later this month, so that it can be added to periodically and accumulate over the next 17 years.

    I have been advised, through this website to go for a tracker or ETF as a "Bare" or "Simple" trust. I obviously don't want to be paying vast, or frequent fees on such a small amount, so can you say, with your vast experience and knowledge, whether any of the options stand out for my purposes?

    I must say that I find the variety of articles on the website to be of enormous interest and usefulness. Thank you.

    Report on 05 September 2013  |  Love thisLove  0 loves

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