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Index trackers....best buy ???
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# 1
ivegotabig1
Old 20-03-2005, 5:26 PM
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Default Index trackers....best buy ???

I appologise for being a bit thick on this subject, but ime thinking of taking out an index tracker,ime not exactly sure how they work,other than they are linked to the ftse & any rise in that will be reflected in the investment you get back,is there a minimum period you have to keep one open ? or any limit on the amount you can put in ? & perhaps most importantly has anyone any recomendations as to which is the best one to go for ??
cheers Andy...
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# 2
Rafter
Old 21-03-2005, 11:48 AM
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Andy,

Index trackers invest in shares that make up the index and try to track it exactly. You may get tiny fluctuations since it is very difficult for the funds to exactly match the index every day as shares go up and down and become a bigger or smaller component of the index.

The big thing to watch out for is charges - they can eat up a big percentage of your gains.

There is a government CAT standard which requires the fund to have very low rates so look out for one with that perhaps.

There is theoretically no limit on how much you can invest. However if you want to avoid paying income tax on dividends earned by your fund or capital gains tax you want to invest in an ISA. The ISA limit is 7000 in any one tax year (year to 5 April) so if you are quick you could invest 7000 this year and then another 7000 on 6 April and all would then be free from tax charges.

However, the wise investor recommends paying a regular amount in and that way you don't risk buying at the top price but spread your investment over time.

There are many different indexes too, FTSE 100 (the 100 largest UK companies dominated by Banks, Drug companies, Oil Companies), FTSE 250 (the 250 largest companies but again weighted towards the bigger ones (which make up a bigger share of the index), The FTSE all share index is the whole london market.

There are also 'actively managed funds' which are not index trackers but which aim to outperform their benchmark index and does open up a whole load of european and worldwide market if you don't want to just invest in the UK. However the fees for this type of fund tend to be higher and 75% of them don't outperform a cheaper index tracker.

One final point to think about is ethical investment. Do you want to invest in companies who operate in the global arms trade, tobacco or who have a poor environmental record. If not there are funds out there which invest in the FTSE4Good index which excludes such companies.

As for recommendations, keep an eye on the broadsheet press in the next week or so and have a look for the best deals on offer.

Personally I invest a regular amount in the direct line FTSE4good index tracker which has performed fairly well in the last couple of years.

Good luck

R.

PS - you might find this area of the motley fool website useful.

It looks as if Legal and General are refunding the fees on their trackers after 1 year which might be a good deal for you?

http://www.fool.co.uk/trackers/index.htm?ref=leftnav

Last edited by Rafter; 21-03-2005 at 1:02 PM. Reason: spelling and added link
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# 3
dunstonh
Old 21-03-2005, 2:10 PM
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Quote:

However, the wise investor recommends paying a regular amount in and that way you don't risk buying at the top price but spread your investment over time.

The risk runs both ways with this. If you invest monthly, you average out the ups and downs. You may not suffer as much if there is a drop but you will not benefit as much when it goes up.

Quote:
There are also 'actively managed funds' which are not index trackers but which aim to outperform their benchmark index and does open up a whole load of european and worldwide market if you don't want to just invest in the UK. However the fees for this type of fund tend to be higher and 75% of them don't outperform a cheaper index tracker.
The stats you see that support that usually include ALL managed funds. Managed funds have varying risk profiles. A low risk fund has lower potential but less volatility. Over the long term you would expect to see greater returns with a tracker but you wouldnt have the risk associated with that.

If you compare UK Trackers with UK managed funds, Trackers have been better over 10 years but managed have been better over 5 years. There are of course exceptions to the rule. If I was to risk a generalisation, I would say that trackers are better when things are going up but not as good when things are going down.
I am a Financial Adviser. Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from a Financial Adviser local to you.
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# 4
kinster
Old 18-11-2005, 4:21 PM
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what else is there besides the L&G one? any bestbuy tables?
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# 5
dunstonh
Old 18-11-2005, 4:35 PM
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M&G
Schroder/Hermes
Tons of own labelled insurance company/bank funds.
I am a Financial Adviser. Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from a Financial Adviser local to you.
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# 6
cheerfulcat
Old 18-11-2005, 4:46 PM
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Quote:
Originally Posted by kinster
what else is there besides the L&G one? any bestbuy tables?
The only real differences between trackers are down to charges and tracking error. You can compare funds here -

http://www.trustnet.co.uk/ut/funds/p...ll&gobutton=Go

Please take note of the index being tracked before comparing performance, though!

Quote:
Originally Posted by Rafter
There are also 'actively managed funds' which are not index trackers but which aim to outperform their benchmark index
Unfortunately they mostly do *not* aim to outperform the benchmark; they aim to follow it very closely, which is why, as you correctly point out, most of them do no better than trackers.
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# 7
kinster
Old 08-12-2005, 8:55 PM
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thanks for that, but where on the page can I find if they charge an exit fee?

Regards

Last edited by kinster; 08-12-2005 at 9:02 PM.
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# 8
dunstonh
Old 08-12-2005, 10:01 PM
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They are unit trusts/OEICs. There is no exit fee.
I am a Financial Adviser. Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from a Financial Adviser local to you.
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# 9
cloud_dog
Old 08-12-2005, 10:20 PM
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Dunstonh

I'm intrigued........... Why did you pick Rafter up on the point about monthly saving/investing???? I would have thought that would be eminently sensible idea for a (seemingly) novice investor???

Surely your not implying you can pick the right time to invest ;-)

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# 10
dunstonh
Old 08-12-2005, 10:49 PM
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Quote:
Originally Posted by cloud_dog
Dunstonh

I'm intrigued........... Why did you pick Rafter up on the point about monthly saving/investing???? I would have thought that would be eminently sensible idea for a (seemingly) novice investor???

Surely your not implying you can pick the right time to invest ;-)

cloud_dog
I couldnt remember typing that. it was 9 months ago.

However, the point is valid. Pound cost averaging does reduce the risk. It also reduces the potential. If you had pound cost averaged over the stockmarket crash, you would have lost less than a single lump sum before. However, during the recovery, you would have gained less than a single lump sum made before the recovery.

Better for novices to know the pros and cons and make the choice from there.
I am a Financial Adviser. Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from a Financial Adviser local to you.
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# 11
ReportInvestor
Old 09-12-2005, 7:10 AM
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To answer the last of the OP's questions, I have read that a new fund from Fidelity has the lowest charge for an index tracker.

0.1% up front charges & 0.3% Total Expense Ratio . You could need to double check that as it's from memory and I haven't checked with Fidelity.

***

P.S. Confirmation of the fidelity charges above on this link

But it's not the cheapest according to This is Money

"....That prize goes to adviser Hargreaves Lansdown, which offers the HSBC FTSE All-Share tracker through its fund supermarket, Vantage, with a TER of 0.25%....."

Last edited by ReportInvestor; 09-12-2005 at 10:08 AM. Reason: To add links and confirm charges
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# 12
murphydavid
Old 09-12-2005, 9:56 AM
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National Savings recently did a FTSE 100 tracker which tracked FTSE 100 and added 25% + No loss G'tee. Bad points were it was a fixed term and the closing value was averaged over the last 6 months (which might represent a 3 month loss in a riseing market). You can ask them to tell you when it is on offer again at

http://www.nsandi.com/products/geb/index.jsp
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# 13
ReportInvestor
Old 09-12-2005, 10:11 AM
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Other bad points compared to a tracker fundis that it doesn't offer a dividend and it forces you to close your investment at a given time. So you can't lock it away for decades as a core part of your portfolio.
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# 14
dunstonh
Old 09-12-2005, 10:24 AM
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Quote:
Originally Posted by murphydavid
National Savings recently did a FTSE 100 tracker which tracked FTSE 100 and added 25% + No loss G'tee. Bad points were it was a fixed term and the closing value was averaged over the last 6 months (which might represent a 3 month loss in a riseing market). You can ask them to tell you when it is on offer again at

http://www.nsandi.com/products/geb/index.jsp
Awful product. You limit yourself to one of the worst performing stockmarkets in Europe (and only include the top 100 in that - making it worse) and you miss out on dividend payments. Plus you have averaging over the last 6 months meaning you do not get the full benefit of any rise in that period.
I am a Financial Adviser. Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from a Financial Adviser local to you.
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# 15
kinster
Old 09-12-2005, 10:48 AM
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Hi

Is this HSBC a good Index Tracker?

http://www.hargreaveslansdown.co.uk/...p?fund_id=2584
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# 16
ReportInvestor
Old 09-12-2005, 12:14 PM
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Quote:
Originally Posted by dunstonh
Awful product. You limit yourself to one of the worst performing stockmarkets in Europe.
Only if it's your only product.

Are there any international trackers you use to get round this problem?

I think we can agree that the NSI offering doesn't really belong on this thread.

Last edited by ReportInvestor; 09-12-2005 at 12:16 PM.
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# 17
carnet
Old 09-12-2005, 12:27 PM
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Quote:
Is this HSBC a good Index Tracker
Really no such thing as a good or bad tracker. Those tracking a particular index are all doing the same thing - only the charges vary.

So, if you must invest in a tracker, just go for the one with the lowest charges.

Be aware, however, that the FTSE 100 has just four sectors which make up over 55% of its total - banks, pharmaceuticals, telecommunications and oils.

Now that is risk.

So, again, if you must invest in a tracker, consider one which tracks either the FTSE 250 or the All Share.

In the FTSE 250, for example, the above four sectors represent just 30% of the total with more exposure to 27 other diverse sectors.
  • For those who think that investing in Blue Chips is preferable to riskier Smaller Companies, it is a fact that, since statistics were first collated (and in the UK the Hoare Govett Smaller Companies Index has now been going for over 50 years), Smaller Companies have outperformed Blue Chips over virtually every discrete period.
  • The best form of risk reduction is diversification. This means a good spread of investments in different funds (managed by different houses), across different asset classes and different international markets.
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# 18
carnet
Old 09-12-2005, 12:33 PM
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Quote:
Originally Posted by ReportInvestor

Are there any international trackers you use to get round this problem?
There are trackers for all major markets (and some which are sector specific) -
although I don't use 'em myself .
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# 19
dunstonh
Old 09-12-2005, 12:57 PM
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Quote:
Be aware, however, that the FTSE 100 has just four sectors which make up over 55% of its total - banks, pharmaceuticals, telecommunications and oils.

Now that is risk.
Thats the biggest problem with the FTSE 100. Plus you have Labour and their taxation which hits this sector heavily. Banks/Insurers got clobbered back in 2001. Oil companies have that new windfall tax against them announced the other day. How long is it before Gordon Brown decides to raid the others. pharmaceuticals could be a target if GB decides that the cost of running the NHS needs to be looked it and they should pay more towards it by one means or another.

Quote:
In the FTSE 250, for example, the above four sectors represent just 30% of the total with more exposure to 27 other diverse sectors.
Although I dont look to invest specifically in managed or tracker, I have to say, that I have used a certain 250 tracker in the portfolios I arrange.

Quote:
Only if it's your only product.
I agree. Problem is that its mostly sold by banks or inexperienced advisors or bought without advice. The people buying generally dont understand stockmarket investing and dont understand diversification. I was up against a bank advisor recently (poor sod didnt have a chance). His idea of diversification was putting all the money with them into 3 versions of their GEB.

This weeks mystery shopper in Financial Advisor paper spoke to a bank financial advisor who had never heard of wraps and didnt know what they were. He of course wouldnt need to know about fund supermarkets/wraps as tied advisors are not allowed to recommend investment funds. This is why banks go all out with these GEBs. No fund selection/sector selection involved. GEBs have nice sound bite style features with limited options. More options means more discussion and more confusion if not handled correctly. Meaning less chance of a "sale". Sales are only what the banks are interested in. ....hmm, going a little OT there.

Quote:
Are there any international trackers you use to get round this problem?
No. I focus on sectors more than funds. The funds I then select outside of the UK, tend to be managed. Most common reason for that is limited availability or limited asset spread within the index being tracked.
I am a Financial Adviser. Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from a Financial Adviser local to you.
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# 20
kinster
Old 09-12-2005, 1:26 PM
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Quote:
Originally Posted by carnet
Really no such thing as a good or bad tracker. Those tracking a particular index are all doing the same thing - only the charges vary.

So, if you must invest in a tracker, just go for the one with the lowest charges.

Be aware, however, that the FTSE 100 has just four sectors which make up over 55% of its total - banks, pharmaceuticals, telecommunications and oils.

Now that is risk.

So, again, if you must invest in a tracker, consider one which tracks either the FTSE 250 or the All Share.

In the FTSE 250, for example, the above four sectors represent just 30% of the total with more exposure to 27 other diverse sectors.
  • For those who think that investing in Blue Chips is preferable to riskier Smaller Companies, it is a fact that, since statistics were first collated (and in the UK the Hoare Govett Smaller Companies Index has now been going for over 50 years), Smaller Companies have outperformed Blue Chips over virtually every discrete period.
  • The best form of risk reduction is diversification. This means a good spread of investments in different funds (managed by different houses), across different asset classes and different international markets.
oh dear, I already know this. I'm asking about the charges here.

Sector UK All Companies
Benchmark Ftse All Share


Launch Date 26/03/1990
Fund Manager N/A
Fund Size 787m as at: 30/09/2005
Num. Holdings 401


Current Yield (%) 2.46
as at: 30/09/2005
Bi-Annually


Initial Charge (%) 0
Annual Charge (%) 0.25
Other Expenses (%) 0
Initial Saving (%) 0.00
Annual Saving (%) 0.000
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