Should I keep my FTSE-100 tracker ISA?

JimmyTheWig · 12 June 2008 at 4:32PM

Background...

I opened a stocks and shares ISA about 8 years ago with Abbey. It was CAT-standard (I believe the annual charge is 1%) and a FTSE-100 tracker. I think that these were all the rage at the time. I'm sure it was recomended in the Observer Money supplement.
I probably chose Abbey as (a) I had my current account with them, (b) "Jonathon Creek" was advertising them, so they had to be good and (c) a tracker is a tracker is a tracker so there wasn't much to choose between providers.

I have paid £50 a month into this ISA since then, and continue to do so. My plan is to use it as part of my pension provision. I am now 32, so plenty of time for growth yet.

Now...

However, I noticed the other day that people don't seem to be advertising tracker ISAs these days.
Then on a different thread today someone wrote "FTSE 100 trackers have been consistently at the bottom for the last 14 years so I can't see anyone wanting one of those.".

Is this true? It may explain why people aren't advertising them any more.

So my question is, do I keep paying in to this ISA or do I transfer it to something better?
And if there is something better, what?

Obviously I'm not expecting people to crystal-ball gaze and tell me what investments are dead-certs to outperform everything else, but is there a general rule to follow?
I would rather not take an active role in selecting the funds (it's taken me 8 years to realise that mine is "consistently at the bottom") but I guess I should be able to if that is what it takes to maintain a decent return.

I am more than happy with a bit of risk, given that the investment has 20+ years left to run. But equally this is (currently) a significant part of my retirement planning so don't want to blow the whole lot on something too risky. I guess I'm saying I want something balanced.

I guess there's about 5-6k in there at the moment and as I say I add £50 a month to it.
Is this enough money to warrant seeing a broker or IFA? I don't want to lose more in fees than I gain by getting a better fund.

Thanks, in advance, for any help.

Jim

earlgrey_3 · 12 June 2008 at 5:11PM

JimmyTheWig wrote: »

(c) a tracker is a tracker is a tracker so there wasn't much to choose between providers.

Not really true. The main difference between trackers is cost. Those with the lowest cost of around 0.25% pa do the best. But they don't pay any annual commision to advisers so tend not to be recommended. Those that pay commision may charge up to 1% pa, half of which goes to the adviser, which always mean they underperform the index they track. Check how yours compares at http://www.trustnet.co.uk/ and make sure the costs are no more than 0.5% pa.

JimmyTheWig wrote: »

Then on a different thread today someone wrote "FTSE 100 trackers have been consistently at the bottom for the last 14 years so I can't see anyone wanting one of those."

Is this true? It may explain why people aren't advertising them any more.

No it's total rubbish, the worst performing funds are always the managed ones. That's primarily because of the higher costs but also because the managers sometimes get caught out by the positions they take. The best performing funds will be the managed funds too, which is fine provided you're in them at the right time.

All the trackers that charge the typical 0.5% or less will be consistently just above average year after year. Never the best and never the worst.

If you had picked a tracker following the wider FTSE All share index rather than the FTSE 100 you'd have probably have done better recently.

JimmyTheWig wrote: »

So my question is, do I keep paying in to this ISA or do I transfer it to something better?
And if there is something better, what?

A tracker may or may not do better than a managed fund following the same index but what you've done is to put all your eggs in one basket - the UK FTSE 100. For all I know that might be the place to be this year but the risk is that it isn't.

Putting all your eggs in one basket is a great way to maximise returns but only if you choose the right basket and most of us aren't clever enough to do that so better to hedge our bets.

JimmyTheWig wrote: »

Obviously I'm not expecting people to crystal-ball gaze and tell me what investments are dead-certs to outperform everything else, but is there a general rule to follow?

I think the most widely accepted rule is the need to spread your risk as much as you can. 6K isn't a huge amount of money but you could still use several funds instead of one.

Another approach could be to use a single global investment trust. The biggest will invest in all the major areas and are probably the closest thing to a one stop shop if that's what's needed. Not really the same as a carefully selected portfolio but certainly an option that some swear by.

dunstonh · 12 June 2008 at 5:50PM

Then on a different thread today someone wrote "FTSE 100 trackers have been consistently at the bottom for the last 14 years so I can't see anyone wanting one of those.".

Is this true?

Yes its true. FTSE100 trackers have been a generally awful place to invest for around 14 years now. Not because of the tracker but because of the Large Caps being out of favour. They have been consistently in bottom quartile or even at the very bottom for some of the years. Once or twice it made it to the half way point but most of the time it was bottom.

earlgrey_3 · 12 June 2008 at 6:15PM

dunstonh wrote: »

Yes its true. FTSE100 trackers have been a generally awful place to invest for around 14 years now. Not because of the tracker but because of the Large Caps being out of favour.

Just to clarify that, unless I've missed something, it seems from the Trustnet figures that the average UK equity income fund has returned 64% over the last 5 years while for example the F&C FTSE 100 tracker has returned just 57.7% for the same period.

But their FTSE all share tracker trading in the wider market that would be used by the managed funds did better than the average managed fund with +68% and has beaten the average comparable managed fund consistently year after year - which is something few managed funds achieve. In fact, just as you'd expect all the All share trackers charging a similar fee have done similarly well.

Obviously those very few trackers that charge a higher fee so as to pay an annual 0.5% commision to advisers have done less well and should be avoided. Always check the fees and any "kickbacks" to financial advisers.

Many managed funds managed to do far worse than either FTSE 100 or Allshare trackers. The worst in that sector seems to have been New Star's fund that managed just 30% over 5 years - less than half of what they'd have achieved if they'd used a pin.

As you say it's the large caps that have done badly over recent years though it would be a brave man to say that the next couple of years won't be different. Doesn't matter who the manager is if you pick the wrong sector.

Of course the best way would be to pick the best of the best managed funds year after year - if you can.

A good managed fund can beat a tracker but a bad one with the added burden of high management fees and commissions can do far worse.

purch · 12 June 2008 at 6:56PM

Tracking the FTSE 100 is a sure way to lag behind just about any other UK Equity investment over a period.

The 100 is too narrow a spread of Industries to be a good Index to track nowadays, and currently is so dominated by Mining companies and Banks that there's no way it can be considered 'balanced'

If you want to use a Tracker I would choose a far broader Index to track, or better still a spread of different Index's.

dunstonh · 12 June 2008 at 7:26PM

It need to be noted that the thread is about FTSE100 trackers and not all share or 250 trackers (or any other index tracker).

[php]1996-2007 (starting at 1996 and working down) - Discrete performance (i.e. year by year individually)
UK All companies sector average (the mid table point) followed by L&G 100 index tracker and its position in that sector.

16.62 13.75 74/104
18.29 26.99 15/110
9.78 15.22 29/125
26.07 17.30 117/133
-4.58 -9.76 137/154
-14.67 -15.41 110/164
-23.55 -23.88 105/183
22.26 15.32 200/208
12.65 8.69 186/219
21.23 17.94 189/231
17.46 12.39 220/251
1.62 4.83 92/275[/php]So, with a couple of exceptions, the FTSE100 tracker didnt even make sector average and was a long way off in some cases.

For a 10 year cumulative, best retail fund was Fidelity Special situations (which also happened to be the best seller through IFAs for decades - so sorry for all those that ended up in the best fund but paid more than a tracker. I am sure you are disappointed at the higher returns you got

). That fund got an annual average return of 14.57%. Sector average was 5.55% and the L&G Tracker was 3.18% (8th from bottom at 117/125).

Those returns are after charges at published rates (i.e. no discounts).

What those figures show more than anything else is that single fund investing can be far more damaging if you get it wrong. It can be nice if you get it right like so many did with Fidelity Spec Sits but with 2000 unit trusts/Oeics the odds of getting the right one is remote. Especially when you pick a medium/high risk, narrow investment fund like a FTSE100 tracker

JimmyTheWig · 13 June 2008 at 8:39AM

Thanks everyone.

Quite a few different views, so can I try to summarise?

1. Everyone seems to agree that a FTSE All share index would be a better bet than the FTSE-100 as it is a wider market.

2. Once I have decided on an index I should shop around to get that index for the lowest fees.

3. The best returns will be by chosing the best performing funds, but it isn't always easy to find the best performing funds.

So I guess my question now is...

What are the chances of picking a fund that is likely to give higher returns (without a significant increase in risk) than the FTSE all share index?
And if those chances are high, do I go to an IFA or take a suggestion from here?

dunstonh · 13 June 2008 at 9:04AM

You have 5-6k in there now so why not 5x£1000 for the funds and an all share tracker for the regular?

What are the chances of picking a fund that is likely to give higher returns (without a significant increase in risk) than the FTSE all share index?

Fairly easy as FTSE trackers are medium/high risk. So, you have funds with very good potential in there as well as areas which are likely to be as volatile.

And if those chances are high, do I go to an IFA or take a suggestion from here?

That is your preference. However, you dont really have enough to interest most IFAs. Those that may show an interest are unlikely to be cost effective.

3. The best returns will be by chosing the best performing funds, but it isn't always easy to find the best performing funds.

Sort of but thats not the way to invest as you dont know what will be best. However, we do know that single fund investing will not be the best so you diversify.

JimmyTheWig · 13 June 2008 at 9:25AM

dunstonh wrote: »

You have 5-6k in there now so why not 5x£1000 for the funds and an all share tracker for the regular?

Sounds like a reasonable suggestion (though I will wait for other opinions before making a decision).

you dont really have enough to interest most IFAs.

In which case how would I go about selecting funds. I would rate myself as money-savvy, and extremely numerate, but have never done anything like this before.
Is it something I could take suggestions from from people posting here? Or would I need to do some sort of research myself? Or just stick a pin in a list?

jem16 · 13 June 2008 at 3:03PM

JimmyTheWig wrote: »

Sounds like a reasonable suggestion (though I will wait for other opinions before making a decision).

I think you've just had the best advice possible.

Is it something I could take suggestions from from people posting here? Or would I need to do some sort of research myself? Or just stick a pin in a list?

No-one is likely to make suggestions that are suitable for you as everyone has a different idea of risk. Although you could look back at some of jamesd's posts as I have seen him mention about 5 funds recently that might be worth you looking into it - please note it's not a suggestion that you go for these funds, just a place to start.

You need to research yourself. Two places to look at performance of funds would be Trustnet and Citywire. Hargreaves and Lansdown also give some useful info.

JimmyTheWig · 13 June 2008 at 3:30PM

Thanks all. Will have a look around...

Should I keep my FTSE-100 tracker ISA?

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