Seeking index trackers in the investible universe can be about as rewarding for new investors as a SETI search for E.T.. You scan reams of data for friendly life-forms, only to discover you’re mostly surrounded by the dark matter of active funds.
So here is a quick and simple post aimed at giving new passive investors the confidence to rapidly recognise legitimate index fund names and so save time during research.
By cracking the code of a typical fund name, you’ll be able to home in on the investments you’re looking for:
Let’s decode this cryptic cypher in more detail.
Fund provider – This is the asset management firm who created the product. In the UK, the main players worth a look at for index funds are:
Sub-asset class – Shows where the fund’s assets are concentrated. For an equity fund this is normally a geographic region. e.g. Developed Europe ex-UK. A bond fund will usually throw in a style, too. e.g. Long Duration Gilts.
Main asset class – Usually reveals whether you’re getting into equity (stocks and shares) or bonds (UK government bonds are called Gilts). There is only one property index fund in the entire UK market. If the fund name doesn’t suggest an asset class then you’re probably looking at an equity fund.
The giveaway – Most but not quite all index funds pop the word index or tracker into their name to make things slightly easier. There are notable exceptions, like the Vanguard LifeStrategy funds. Use a Total Expense Ratio (TER) filter of 0.5% to narrow the field.
Share class – A single fund may offer itself up in more guises than Zeus, as denoted by its share class. Instead of turning up as a bull or swan like a Greek god, a fund simply puts some letters in its name (e.g. Class A or D or C) to indicate that exactly the same product is available at different costs. Index funds tend to be limited to three types:
- Retail – Available to individual investors like you and me. The fund name may include the abbreviation Ret instead of a share class letter.
- Institutional – Available to pension funds and the like, but only very rarely to you and me when a deal has been cut between the fund provider and a particular broker. Inst funds are cheaper than their retail counter-parts.
- RDR-friendly – Funds that have had trail commission chopped out. The idea is that with so-called ‘clean funds’ you know how much you’re paying for the fund and how much you’re paying to intermediaries like IFAs and fund supermarkets. RDR funds should be cheaper than Retail versions, but you’ll probably have to pay an additional platform fee to own them.
Share class letters have specific meanings in the US, but this doesn’t seem to apply here; different companies appear to be making it up as they go along. If anyone knows different, please do explain in the comments below.
Dividend treatment – Boils down to two types: Accumulation (Acc) or Income (Inc).
- Accumulation funds automatically reinvest your dividends in the fund
- Income funds periodically pay out divis for you to spend or reinvest at will.
Acc funds are best for auto-generating discipline when you’re still building your pile.
Panning for gold
That site has a few gaps though, unlike Morningstar which deluges you in fund crud. Because you can’t filter for trackers there, you end up trying to sieve out the index fund nuggets using TER as the mesh in your net.
As you trawl the internet, you’ll also come across all kinds of institutional funds that you can’t buy like the Royal London index tracker. (OK, you’re in if you can invest a million). On top of that, database errors and inconsistent abbreviations sow further confusion around fund names.
Whatever you do, record the ISIN number of the fund you’re interested in. An ISIN number looks something like this: GB00B59G4H82.
This catchy number is the one sure way I’ve found to reliably distinguish between fund versions, and so ensure I buy the right one when I place an order.
Take it steady,