ISA ideas: low-cost index tracker fund options

If you want to invest in a stock market, index-tracking funds offer a low-cost option. Rather than rely on a fund manager to actively pick a portfolio of shares, an index tracker replicates the performance of an index.

This passive approach is cheaper to operate and therefore the charges are lower. Actively managed funds typically charge around 0.75% a year; passively managed funds can cost less than 0.10% a year.

Index funds mirror all manner of markets and investment types. Most commonly they track the stock market of a specific country, such as the FTSE 100, the UK’s largest companies, or the S&P 500 of the US. They also commonly pull together multiple markets into one fund. 

They are typically held in a Stocks and Shares ISA, Self-invested Personal Pension (SIPP) or an investment account.

There are 15 index-tracking funds on our Select 50 list of favoured funds covering a wide variety of regions and investment types.

Here’s a closer look at four index funds from this list that focus on the UK, US and global stock markets.

1. iShares Core FTSE 100 

This fund tracks the FTSE 100 index which is made up of the 100 largest companies by value listed in London. 

The biggest holdings include the likes of Shell, AstraZeneca, HSBC, Unilever and BP. These companies are based in the UK but also operate internationally. This characteristic means the index and the fund has more of an international bent.

The fund, run by giant investment firm BlackRock, is actually an exchange-traded fund (ETF). These tend to be a little cheaper than traditional tracker funds. This ETF offers a cheap way to access the FTSE 100 with a 0.07% ongoing annual charge. The current yield is 2.93%, which is not guaranteed.

2. Vanguard FTSE 250 ETF 

This fund is an exchange-traded fund that tracks the FTSE 250 - an index focused on smaller to medium sized UK companies and therefore better reflects the health of the British economy than a FTSE 100 tracker. Company holdings include IG Group and Taylor Wimpey. 

The fund’s ongoing charge is 0.10% a year and it pays a yield of 3.76%. 

3. Vanguard S&P 500 ETF

This fund provides a cheap and easy way to invest in the US stock market by tracking the popular S&P 500 index. It provides access to the world’s largest technology companies including Apple, NVIDIA, Microsoft, Amazon and Facebook-owner Meta.

The fund has a 0.07% ongoing charge. The yield for the US market is lower than for the UK with the fund currently paying income of 0.94%.

An alternative way to invest in US shares is via an ‘equal-weighted’ tracker fund. Instead of holding shares from the S&P 500 based on their market value, it holds the top 500 companies in even amounts. The Legal & General S&P 500 US Equal-Weight Index, one such fund, was added to our Select 50 list last year. 
 

4. Legal & General Global Equity Index

L&G is a big player in index-tracking funds with a well-regarded capability. Its global equity fund backs a range of the world’s markets based on their size. That means a large amount is allocated to the US - currently 66.5% - compared to 8.1% in the eurozone and 5.7% in Japan. The allocation and holdings of each fund can be found on the ‘portfolio’ tab on the relevant data page. It comes with an ongoing cost of 0.13% and currently pays a yield of 1.3%.

Our platform charge

On top of the ongoing cost of the funds, Fidelity charges a competitive fee for holding your funds. This is typically 0.35% a year (or 0.20% on larger portfolios). However, for shares and ETFs, fees are capped at £90 a year (£7.50 a month). Bear in mind that funds are free to buy and sell but ETFs and shares are subject to a dealing charge of £7.50.

• Find out more about fees and charges

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