FTSE Tracker vs. Invesco

Single fund investing is old fashioned and leads to lower returns.

FTSE100 and FTSE All share trackers havent performed above sector average in a single year for the last 18 years. So, sticking all your money there hasnt been a good decision with hindsight either.

I would have more confidence in most of the Inv Perp funds going forward than either a FTSE100 or FTSE all share tracker. However, I wouldnt put all my eggs in that one basket either. Also, by investing directly, you are paying more charges than if you were using an average IFA.

Basically, you need to review the two things and alter the fund selection to suit your risk profile. £5200 should be 5 funds for example

I would suggest transferring the funds to a fund supermarket giving you far greater access to the investment funds from all the major fund houses (not just Inv Perp but Gartmore, Jupiter, Fidelity etc).

Currently by going direct to Inv Perp, you are paying full charges as if you were using an adviser which is 3% initial commission. I say lower because the FSA publish average commissions taken by advisers and currently it is at 1.8% on ISAs with advice. That means some are lower and some are more expensive but you are paying the typical maximum at present and getting no advice.

Your choice is either to use an IFA and pay the same as you are now (or possibly less) but get a portfolio built for you or do it yourself and use a discount provider. Which is best will depend on your ability and confidence. £14,000 isnt enough to be build the ideal sector allocated portfolio but you could do £1000 per fund and pick a wide spread across the areas and make sure the overall spread averages out to match your risk profile (again, you can do this yourself or instruct an IFA to do that).

Dunston, I assume are you aren't saying that Sting's tracker has done worse over the period he has held it than all managed funds? Isn't that the whole point with trackers? Because there is no element of judgement involved, they are unlikely to ever be near the top but unlikely to be at the bottom either. Even with hindsight, he's done a lot better I assume than going for one of the real bozos, "managed" or not.

Single fund investing, whether tracker or tied, is the real downer on performance. As for the tracker vs managed bit, you dont know but with 18 years in the bottom half, I would take my bets on a managed fund from a big fund house. By the time you rule out passive funds, bank/building society funds, closed funds etc you are then left with a list which stand with good potential.

Isn't it true that for all their trying the majority of managed funds underperform the relevant index?

Its a myth. If the FTSE 100 or FTSE all share tracker has never made it above the way point in the UK all companies sector, that means there are more than half the funds in that sector performing better than it.

Is there any way of knowing which of today's favorites will be those that seriously underperform both the indices and the index-trackers in future years?

Future is unknown so you invest in a way to take that into account.

OK, spreading the money among several managed funds will reduce the risk of that happening but there may be those who prefer not to do that for various reasons.

In which case, they have only themselves to blame

Obviously tracker funds have very low management costs and don't pay commisions to IFAs aren't going to be much liked by them but is it entirely right to say they don't have any value for anyone?

They do pay commissions and they are used by IFAs. Its the way they are used which is at fault. Single fund tracker investing.

Would I put my own money in a tracker? No. Although a Japanese Tracker I might (but dont, but thinking about it). I prefer the odds of the decent managed funds coming in better. Which they usually do.

Hasn't the Fidelity Growth Fund seriously underperformed trackers over the last 5 years? Just 31.6% against the allshare index 51%? I think the L&G tracker managed 46% without any charges or have I misread?

I dont know. I havent looked as I havent used that fund and I am not very keen on UK Growth funds in general. I prefer a mix of smaller companies and equity income.

I can tell you that a real portfolio invested in a sector allocated spread on 24th May 2001 was up 58.35% on last rebalance in May last year. The HSBC FTSE all share index I fund that it was all in previously to that was up 11.16% in that same period. The portfolio used 11 funds and not all of them are constant performers as no-one gets it right all the time. I just did a quick and dirty scan of the portfolio and there is actually very little in it between the FTSE all share and the portfolio since May as its been very much a growth period in that time. This reflects past performance when the tracker does well when going up but worse when going down.

It's a myth that most managed funds underperform their index? Even when fees are included ? Are you sure about that?

The funds in the top half are those that performed over the given timescale. Presumably they won't all be there indefinitely and what surely counts is the difference in worth between the time your funds go in and the time they come out? One fund will be at the very bottom. On how many years has say the L&G tracker been at the very bottom?

In the last 18 years, the FTSE all share tracker has appeard in the bottom half of the UK all companies sector each and every year. So, for 18 years, more than half of the UK all companies funds available at that time have outperformed it.

I havent got time to do a full analysis now but last calender year out of 678 funds (that registed a performance) in the UK all companies sector, the L&G FTSE 100 fund came 575th. You could reduce that 678 down a bit as about a dozen didnt register a full year as they were new launches.

Over 10 years compound, of the 199 funds that have been open over that period in the UK all companies sector, the F&C All share (L&G FTSE100 wasnt launched back then) came 75th. So on compound performance it did just a bit better than half way. Direct Line FTSE100 tracker came in at 151. Much closer to the bottom.