In Britain, Exchange Traded Funds (ETFs) have become an increasingly popular investment device in recent years.
“Tracker funds” as they are commonly called, are funds which hold assets such as stocks, bonds, commodities, oil, precious metals, foreign currency, or other products and trade like common equities on stock exchanges around the world including New York, London, and Frankfurt.
The funds typically track an index or basket of goods so a single position in a FTSE 100 or S&P 500 tracker fund can give investors exposure into a full market’s range of goods. Likewise, other funds such as oil, gold, and currency trackers can help investors spread their portfolio across a broader range of assets than only equities.
These tracker funds have become especially attractive to investors because of the relative low cost and high liquidity which make the instruments an ideal tool to help diversify a portfolio.
As the funds track an index, they do not require the time and research spent on security selection and therefore will not incur any advisory fees like traditional advisor-operated mutual funds would. The funds themselves are less expensive than buying the full basket of the underlying goods and with low cost brokers in the UK, transaction fees can be quite minimal.
To cater to this emerging trend, last month Dutch broker DEGIRO began offering a selection of 700 free to trade ETFs on their platform. “We want our clients, regardless of portfolio size, to be able to diversify their investment.” says Paul Laverty, in charge of Business Development for the UK and Ireland at DEGIRO. “Clients of DEGIRO can now choose from a range of providers including BlackRock, LYXOR, SPDR and Vanguard and trade the products free of transition fee.”
Based out of Amsterdam, DEGIRO has been catering to the retail market since 2013. With 100,000 clients, DEGIRO is able to offer such low fees thanks to an approach previously not seen in the industry. While most brokers charge standard (and significantly higher) retail client fees to their clients and make their revenue by offering additional services such as advice and portfolio management, DEGIRO offers no additional services beyond access to their own in-house designed platform to execute orders.
The firm uses this platform to process a high volume of transfers while minimizing overhead costs. This way, all clients no matter the size of their portfolio or the frequency of trades conducted, can benefit from the low fees previously paid by large institutional investors.
With some of the highest broker fees in Europe, prior to DEGIRO’s entrance into the market last June transactions in the UK came at substantially higher fees. DEGIRO investors can now trade British stocks for only £1.75 + 0.004% per transaction. US stocks trade at €0.50 + $0.004/share, and now selected ETFs trade free of transaction fee.
|DEGIRO||UK Average||Your Savings|
|£1,000 of Tesco Shares||£1.79||£11.47||84%|
|£5,000 of Google*Shares||£0.42||£14.09||97%|
|£10,000 of FTSE Tracker ETFs||FREE**||£12.19||100%|
*USD/GBP = 0.67, EUR/GBP = 0.76
** subject to conditions, see degiro.co.uk/fees
The firm’s unique approach has been wildly successful. DEGIRO has recently released strong first quarter figures showing an increase in transaction volume of 71% from last year to nearly 2.3 million trades conducted between January and March. Now with zero-commission ETFs and no minimums to purchase, the firm looks well positioned to meet the needs of UK investors looking for a way to diversify their portfolios.