Tracker or managed fund?

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savingforoz
savingforoz Posts: 1,118 Forumite
in ISAs & tax-free savings
Does anyone have any views on whether a FTSE tracker or similar is better than a managed fund for someone new to this? I am thinking about utilising my mini shares ISA allowance and was wondering where to concentrate looking.
Life is not a dress rehearsal.
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  • cheerfulcat
    cheerfulcat Posts: 3,338 Forumite
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    Oh dear...well, I'll get mine in first and say that IMO only, not advice, a tracker is absolutely the best way for a beginner ( or someone with no interest in following his or her investments ) to get stock market exposure. I would suggest that regular monthly investments will make the best use of the pound cost averaging effect ( where your pound buys more units when the price is lower ).

    What index to track, and what vehicle to use, is another question. I favour a 60-40 split with the bulk of the investment in UK ( if you are UK based ) markets and the rest in overseas or other trackers. This is for a novice investor.

    I like ETFs ( exchange traded funds ) very much indeed. They work like tracker funds but they are continuously priced throughout the day ( UTs are priced once, at midday, so if you buy or sell in the afternoon you don't know what the price will be ). You can track all sorts of indices. More info here.

    HTH

    Cheerfulcat
  • dunstonh
    dunstonh Posts: 116,374 Forumite
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    It you are looking to utilise your MINI isa allowance of £4000, then you should be looking for at least 4 funds. You should pick the sectors you want to invest in first and then see what funds are available in that sector. There may not be tracker funds available. In which case you pick a managed fund.

    There is no right answer or wrong answer to this. Just lots of debate and discussion from both sides. If you were going to go into bank or insurance company funds (as a generalisation), you would be daft and may as well pick the tracker. However, if you were going to look at some of the major fund houses, then you do have greater potential to out perform the tracker. However, there are no guarantees on any of these things.

    Pick your sectors first, then decide.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • EdInvestor
    EdInvestor Posts: 15,749 Forumite
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    savingforoz wrote:
    Does anyone have any views on whether a FTSE tracker or similar is better than a managed fund for someone new to this? I am thinking about utilising my mini shares ISA allowance and was wondering where to concentrate looking.


    If you pick a top managed fund, it will almost always be better.But 90% of managed funds are second rate.

    With a tracker it's cheap, and you do at least know what you're getting even if it's also likely to perform well under certain circumstances.

    Personally I prefer Equity Income funds. These funds invest in shares which pay good dividends, which means they tend to do reaonably well in good and bad times, unlike trackers .They are less risky than trackers.


    List of equity income funds here
    Trying to keep it simple...;)
  • al_yrpal
    al_yrpal Posts: 339 Forumite
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    A good one place investment could be a fund of funds. This is where a manager selects other funds and invests on your behalf. Diversifying your investment like dunstonh is recommending, only the fund manager is doing it. The very best fund of funds achieved 40% growth last year. A list of funds can be found here: http://www.trustnet.com/ut/funds/perf.asp?sort=29&ss=0&txtS=&txtSS=&columns=&page=0&booIMA=0&reg=all&sec=fof&ima=all&unit=all&type=all The charges may be a bit higher, but you can usually get all the initial charge rebated and a proportion of the annual charge rebated by using a discount brochure (see Martin's recommendations). At 40% growth, these charges are insignificant anyway.

    This education guide expalins Fund of Funds http://www.trustnet.com/help/multimanager/?ms=1&ss=0

    Such an investment beat trackers hands down last year and are an ideal starting point in managed funds. Read the recent book 'Fundology' for a better understanding of fund investment.
    Survivor of debt, redundancy, endowment scams, share crashes, sky-high inflation, lousy financial advice, and multiple house price booms. Comfortably retired after learning to back my own judgement.
    This is not advice - hopefully it's common sense..
  • carnet
    carnet Posts: 501 Forumite
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    cheerfulcat wrote:
    a tracker is absolutely the best way for a beginner ( or someone with no interest in following his or her investments ) to get stock market exposure. I would suggest that regular monthly investments will make the best use of the pound cost averaging effect ( where your pound buys more units when the price is lower ).

    My take on regular savings is that these are best used for higher risk/reward investments ie those with higher volatility than trackers.

    This optimises the pound-cost-averaging effect.
  • savingforoz
    savingforoz Posts: 1,118 Forumite
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    Thanks to everyone who has replied - I have printed everything off and will do a bit more research.
    Life is not a dress rehearsal.
  • mary
    mary Posts: 1,584 Forumite
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    al_yrpal wrote:

    Such an investment beat trackers hands down last year and are an ideal starting point in managed funds. Read the recent book 'Fundology' for a better understanding of fund investment.

    I've seen this book mentioned a few times on this site, have tried to find it on Google with no luck. Who is the author and publisher? How much?
  • al_yrpal
    al_yrpal Posts: 339 Forumite
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    Fundology - seems to be cheaper than Amazon here - http://books.global-investor.com/pages/home.htm?ginPtrCode=11012
    Survivor of debt, redundancy, endowment scams, share crashes, sky-high inflation, lousy financial advice, and multiple house price booms. Comfortably retired after learning to back my own judgement.
    This is not advice - hopefully it's common sense..
  • cloud_dog
    cloud_dog Posts: 6,044 Forumite
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    Just throw my two cents worth.

    For new investors I am a big fan of monthly investment schemes as it takes the worry out of timing investments and any recriminations should your timing be off, i.e. just before the shares go down.

    I am not a big fan of trackers because they tend to do pretty much what they say - they will track an index. This is fine in the good times when the index is going up but when times are not so good or just indecisive the trackers will continue to track the index, i.e. nowhere or down. This is where a good fund (manager) will be able to stock pick even in the no so good times. (yes I know, how do you pick a good fund / manager).

    My opinion (and it is just that) is that you should use the tools at your fingertips (the web), trustnet is a very good site (as Al-rypal has said / provided the link). Look at UK Growth funds over the different time periods and choose one that seems to be consistently good - its not that difficult even for someone who doesn't know what they are doing. Another site to look at would be https://www.bestinvest.co.uk (click on Investments, Reasearch, Fund Managers) and then do a similar coparison excercise with top ranking managers for UK Growth).

    All of the above posts contain valid information perhaps there should be a sticky on this subject as it has been raised more than a few times recently.

    cloud_dog
    Personal Responsibility - Sad but True :D

    Sometimes.... I am like a dog with a bone
  • carnet
    carnet Posts: 501 Forumite
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    al_yrpal wrote:
    Fundology - seems to be cheaper than Amazon here - http://books.global-investor.com/pages/home.htm?ginPtrCode=11012


    Its even cheaper here ;);

    http://www.fundology.co.uk/
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