Monday, 27 March 2017

AJ Bell Passive Funds Launch

I was pleased to receive an email from my ISA provider AJ Bell this week to flag up the launch of their new range of passive funds from April.

I guess as the rise of passive index funds goes from strength to strength, it makes a lot of sense for the platform to offer a ready-made option for their customers.

Five Options

AJ Bell are offering a range of 5 funds which are a mix of equities, corporate bonds, gilts, property and cash. Each fund will hold a blend of underlying funds/ETFs from the likes of Vanguard, Blackrock, iShares and State Street etc.

The offerings range from cautious to adventurous and the corresponding equity levels start at 20% then step up to 30% for the moderately cautious, 40% for the middle option, 50% for the next step through to 60% for the higher level - so not overly adventurous.

I think the weighting for UK equities is less than the Vanguard Lifestrategy funds however, I was a little confused to see they seem to use 2 options for the S&P 500 - iShares ETF and Source ETF.

The bonds comprise a mix of gilts, corporate bonds and high yield bonds. The total percentage of bonds is 60% for the cautious and falls to 20% for the adventurous.

The portfolios also includes a percentage of property and cash across all options which my Vanguard Lifestrategy range does not offer so this could be good for those investors who require a broader mix of assets.


I was a tad disappointed to see the relatively high figure of 0.50% for ongoing charges - certainly high compared to the Vanguard funds at 0.22%. To mitigate, there is no charge on purchase and until 2019, AJ Bell will not levy their usual 0.25% custody fee.

Would it not have been possible to consolidate the underlying charges of the funds/ETFs together with a small admin fee to make a total of, say 0.4% and waive the custody fee permanently? …just a thought but possibly not practical.


Apart from the higher charges, which will take away from returns over the longer periods - I welcome this offering from AJ Bell and will certainly bear them in mind when the time comes around reinvesting some of the cash from various sales in recent months as the markets have risen.

Index investing is becoming very popular but of course, whatever index you follow, they are not immune to the bear market so however tempting the offering I will leave my cash in cash for a while longer.

The funds should be available from 19th April.

I would be interested to hear what others think - leave a comment below....


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  2. Looking at the Cautious variety: the long-duration gilts (15%) and the Vanguard inflation linked gilt fund (10%) (which is also long duration) add a certain vulnerability to interest rate rises. I note there are two different corporate bond funds, making up 30% of the total. Would need to look into that. Following Tim Hale (Smarter Investing), I would count the property as part of the equity allocation so that would make 25:75 equity/bond+cash. 0.5% charge would be ok but I might want to jump ship if they added a 0.25% platform charge on top.

    1. Yes, with the corp bonds they use iShares and SPDR - maybe they just like to spread the risk between providers or have a % limit on the asset with a provider.

      As the equity allocation is not so high with any option, I would be happy with the 10% property in addition.

      I cannot find a reference to their policy on rebalancing and that should be made clearer in the key info document.

    2. I raised the question of rebalancing with AJ Bell and their reply as follows:

      The funds are managed on a daily basis with cash flow used to ensure the asset allocation remains in line with the target portfolio. This use of cashflow avoids the need for wholesale rebalancing that can incur unnecessary transaction costs.

      On a quarterly basis, the long term strategic asset allocation is updated. At this point, the fund management team will look at the potential changes to determine whether the costs / benefit analysis warrants a wider change to the portfolio. This approach limits the risk of over trading where there is no discernable benefit in incurring additional transaction costs.

    3. That's interesting. Good to see them trying to keep down trading costs. The quarterly tinkering reminds one it is slightly experimental at this stage. As someone with a 10-year horizon, I would hope that they do as little as possible!

  3. I guess the (what seems to me) high corporate bond allocation is to compensate for the lack of yield from gilts, with some added risk. The long-duration component suggests that this is intended to be a long-term product (10-year horizon?, suitable for pensions?). I like the look of the ETF portfolios from Nutmeg. Interested to hear your views on those.

    1. Sorry cannot help on Nutmeg as the site cannot provide a secure connection.

    2. You mean the security is inadequate?