The same index at three different prices

This is written to be used rather than admired. Each section below is a decision about paying different prices for identical exposure, and each one has a default.

Identical exposure, different price tags

When several funds track the same index using the same method, what you actually own is close to identical whichever one you buy. Their charges are not identical, and the range between the cheapest and the dearest tracking a popular index can be several multiples.

This is unusual in consumer markets, where a higher price normally buys something different, and here it frequently buys nothing at all. The survival of expensive versions of an essentially standardised product tells you something about how customers actually choose between them. Legacy share classes are the main reason: somebody bought a fund years ago and a cheaper class launched afterwards without them noticing.

Why the expensive versions survive

Distribution matters more than price in fund sales, so a fund available on the platform somebody already uses starts with an enormous advantage. Inertia does the rest, because switching requires a decision and the saving is expressed as a fraction of a per cent. Branding works too, and a familiar provider name reassures people in a category where the underlying product is close to standardised.

The useful part is this: minimum investment thresholds gate the cheapest institutional classes, which are genuinely unavailable to smaller investors on some platforms. None of this is deceptive; it is a market where the buyer rarely compares and the seller has no reason to prompt them to.

Where the differences are not cosmetic

Domicile changes how dividend withholding applies, and that can matter more than a small difference in the stated ongoing charge. Replication method, securities lending policy and fund size all affect realised tracking, and none of them appear in the headline price.

In practice, the currency of listing changes your conversion costs without changing your underlying exposure by any amount at all. A cheaper fund tracking a slightly different index is not the same product, and index names are deliberately similar to one another. Comparing realised tracking difference across several years captures most of these effects in a single number you can rank on.

Doing the comparison once

List every candidate fund tracking the index you want, with its charge, domicile, size, replication method and multi-year tracking record. That list fits on one page and takes an evening to assemble, for a decision you may end up holding for decades.

Exclude anything too small to be confident of its survival, since fund closures create forced sales you did not choose to make. Then choose, write down why, and stop, because the remaining differences are smaller than the cost of continually revisiting the question.

Repeating this exercise every year converts a one-off saving into a recurring stream of switching costs.

Checking what you already hold

Look up the share class you actually own and compare it with the cheapest class of the same fund available on your platform. Conversions between share classes of one fund are frequently free and, in many systems, are not treated as a disposal. This is the highest-value cost check available to most people, because it changes an ongoing charge without changing anything you hold.

Some platforms convert customers to cheaper classes automatically and some do not, so it is worth confirming rather than assuming either. Do it once, and afterwards only when a notification tells you the available range has changed.

Some of this will suit you and some will not, and that is the point.

Keeping it in proportion

A saving of a fraction of a per cent sounds trivial and acts on the entire balance every year for as long as you hold it. It is also certain, which distinguishes it from every argument about which index or which allocation will do better in future. That certainty is precisely why cost gets less attention than selection, because settled things are less interesting than unsettled ones.

In practice, none of this makes an expensive fund a bad investment or a cheap one a good decision on its own merits. It makes price the one comparison you can finish before deciding anything, which is a reason to do it first rather than last.

The takeaway

The exposure is a commodity. The price is not, and it is the only part of the comparison with a definite answer.

Small and repeatable beats ambitious and abandoned, almost every time.