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Hargreaves Lansdown responds to demand for tracker funds with new service

Published: 00:17 05 Apr 2018 AEST

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New clients will be initially invested in the L&G UK Index fund

Hargreaves Lansdown PLC (LON:HL.) has launched a tracker fund for first-time investors in response to growing demand for passive investing. 

The company said the service, Simply Invest, will provide clients with tools to help learn about investing and offer funds with low charges.

Clients using the service will be initially invested in the Legal and General UK Index fund, which tracks the performance of the FTSE All-Share index.

Simply Invest customers using the L&G fund will pay ongoing annual fund charge of 0.04%, less than the usual charge of 0.1%.

Simon Hynes, head of retail distribution of the European, Middle East and African division at  Legal & General Investment Management, said:  “We are delighted to partner with Hargreaves Lansdown in support of this new service to help more people think about saving for their future."

Users will have access to the usual features offered by Hargreaves, including a mobile app, helpdesk and access to other fund options. 

Pros and cons of index trackers 

The launch of the service comes as the popularity of index trackers grows due to the ease and lower costs involved.

Tracker funds replicate the performance of a set index, such as the FTSE 100, and are known as passive investing because it removes the need for a fund manager to actively choose stocks. 

By taking away the need for a fund manager, fees of index trackers are generally much lower.

Critics have warned that using tracker funds will not achieve the same level of returns of an actively managed fund because fund managers analyse market conditions, strategy and performance when selecting stocks.

The goal of active funds is to beat the market while the value of trackers is determined by whether or not the chosen index they mimic rises or falls.

Given the economic uncertainty in the UK, there is also the risk that the market declines.  

The other risk is that investors could end up with a heavily skewed portfolio since the indices the portfolio the tracker funds are built on can be dominated by a particular sector of companies.

However, Hargreaves Lansdown argued that its Simply Invest service was a good place to start.

“For investors starting off it makes sense to invest in their home market to begin with, and the UK stock market has plenty of international exposure within it, so is well diversified on that front,” it said.

"Younger investors often have quite a lot on their plate when it comes to dipping their toe in the market for the first time."

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