Index Tracker Funds

laffer

I was thinking of investing in an index tracker fund. Could anyone suggest particular funds which are relatively easy to access (or an online broker). I would prefer a fund that would allow regular monthly contributions (as opposed to one which requires a single lump sum payment). Anyone have any tips on these investments?

thanks in advance.

dunstonh

I was thinking of investing in an index tracker fund.

Which index did you want to track?

Could anyone suggest particular funds which are relatively easy to access (or an online broker).

All funds are easy to access apart from bricks and mortar funds and some niche funds in areas where liquidity may be an issue.

I would prefer a fund that would allow regular monthly contributions (as opposed to one which requires a single lump sum payment).

They all do.

Anyone have any tips on these investments?

Before you decide anything you need to understand risk and reward and know where you want to invest. Then you look managed/tracker and charges. Not the other way round. Most trackers cover indicies in the medium/high risk range or higher. So, are you willing to accept losses of 50% in 12 months potentially or is that too high for you?

laffer

Thanks for the very helpful reply Dunstonh. I was thinking of either tracking the FTSE 100, the Dow or Dax (in there various forms).

Could you suggest any websites to look at for the purposes of identifying and investigating funds.

I accept that there is a risk with any investments. That is why I was hopeful of investing a small amount each month, regularly, on the basis that I can afford to lose the money if it ultimatley goes belly up (not that I will not whinge if indeed I do lose it all - but that is natural).

Thanks for your advice so far.

earlgrey_3

There's a list at http://www.fool.co.uk/news/investing/2008/06/11/ten-top-trackers.aspx of some of the trackers out there including those that accept monthly contributions and you can find performance figures for them them at http://www.trustnet.com.

If you wanted to reduce your risk from that of pure equities there are also gilt index funds etc.

Another route you might like to look at for investing using monthly schemes without lining the pockets of financial advisers with annual kickbacks from the fund managers is by using investment trusts. Some of the global funds that give a diverse spread across regions and asset classes are popular with small investors and have low management fees to drag on returns. See http://www.aitc.co.uk/

jem16

earlgrey wrote: »

Another route you might like to look at for investing using monthly schemes without lining the pockets of financial advisers with annual kickbacks from the fund managers is by using investment trusts.

Heaven help someone actually getting paid for working! Did you work for free?

Myrmidon_J

laffer wrote: »

I was thinking of either tracking the FTSE 100, the Dow or Dax (in there various forms).

Tracking the FTSE, I like the M&G Index Tracker and L&G UK Index funds. They have performed consistently and are relatively cheap (AMC 0.30% and 0.50%).

The Scottish Mutual UK All Share Index has also performed well, but the AMC is higher at 1.00% - the fund therefore has to outperform its peers by (roughly) 0.60% to break even in any year.

Fund charges play a vital, often-overlooked role in determining portfolio performance!

dunstonh

Tracking the FTSE, I like the M&G Index Tracker and L&G UK Index funds. They have performed consistently and are relatively cheap (AMC 0.30% and 0.50%).

Trackers are consistent in that the FTSE All share will consistently be mid-table. The FTSE100 trackers have been consistently bottom for around 14 years. The FTSE250 trackers had a good period at the top of the tree but that was mainly for the same reason that the FTSE100 trackers were bottom.

laffer

Thanks for the tips everyone. The M&G Fund looks of interest. I might do some further investigation on that.

I take it you do not rate trackers as being worthwhile investments Dunstonh?

Hope the market rebounds next year...:beer:

sabretoothtigger

I like the idea of etf, tracking indexs on a daily basis. Theres often times I would like to not track a downward trend

I wonder if h&l would let me do that


You might want to consider tracking the pacific indexes or india even

dunstonh

take it you do not rate trackers as being worthwhile investments Dunstonh?

I have no issues with trackers when used for the right reasons. I use them often enough in certain areas and with certain people. However, the reasons given at times by some people for using them are often flawed or based inaccurate information. So I am just questioning the reasons.

Common errors we see on the board are:
1 - they are lower risk. Wrong. They can actually be higher risk than the sector average. especially if they are tracking a narrow index or a riskier index.
2 - they perform better than most managed funds. Wrong. They perform better than most managed funds that have the same investment objectives. Typically passive managed funds. However, active managed funds tend to fair better.
3 - In the cases of more limited indices, the performance will be based on more on the state of the markets at the time. FTSE250 trackers did well in the growth years because mid caps were the area where the growth was. FTSE100 trackers were awful. This has switched somewhat with the decline as large caps will look more attractive than mid caps in a recession. However, value is where the growth it likely to be in the near future and you dont get a tracker on value. Plus, the FTSE is too heavy in financials and oil. If either of those fail to do well then the FTSE100 trackers will be handicapped due to the high weighting in those.
4 - A lot of the assumptions on trackers are based on the US market which treats trackers differently to managed funds. Including on taxation. Managed funds there are immediately handicapped and make the use of trackers more appealing.
5 - The Motley Fool article contains a number of incorrect statements or rather statements used in a distorted context. For example, they say "9 out of 10 managed funds don't manage to beat the index over the long-term. ". If that is the case, then how is it that the FTSE all share trackers consistently come in mid table? If its middle, then that means half the funds are above and half are below. That doesnt equate to being in the top 10% as MF say it does. Plus, MF are tied to L&G for provision of investment products and L&G have a range of trackers as their major direct sales. Are they creating a bias to generate sales? MF was better in its less commercial days.

If you are going to go with a tracker, go with it for the right reasons and focus on what you want to track and if a tracker is the right option for that sector. Some sectors it may be, some it may not.

earlgrey_3

laffer wrote: »

I take it you do not rate trackers as being worthwhile investments Dunstonh?

Commission-based financial advisers dislike trackers because managed funds pay them two or three times as much trail commission as trackers. The dodgier advisers will give all sorts of reasons to justify their position. The L&G all share tracker pays them just 0.30% p.a trail commission and the L&G Gilts index pays 0.00%. Whereas they can get 0.75% p.a. and more by selling managed funds.

That means on an investment of say £100K they'll get just £300 a year or less in annual trail commission if they sell tracker funds but up to £1000 a year for the same investment if they sell managed funds. Makes a big difference to their profits. That's the major problem with using commission-based IFAs and to some extend those using a "hybrid" fee-based fee system.

You'll get a very different story from those advisers who charge a genuine flat rate fee. You can get a less biased opinion than from commission hungry advisers in this Financial Times booklet, long advocates of trackers: http://www.brochurecentre.co.uk/pdf/file_55.pdf and here Bloomsbury Financial Planning who provide non-commission based management for high worth individuals explain why they favour trackers whenever possible: http://www.bloomsburyfp.co.uk/about/

dunstonh wrote: »

The FTSE100 trackers have been consistently bottom for around 14 years. The FTSE250 trackers had a good period at the top of the tree but that was mainly for the same reason that the FTSE100 trackers were bottom.

I would be very interested in the proof of that claim. Bottom of what exactly? The All-share index has often trailed the FTSE100 but not always - with this year as an example. The L&G FTSE100 tracker is about 2% ahead of the L&G All share tracker this year. Generally though I wouldn't disagree that tracking the wider index may be the better option but it depends on the objective and on other investments.

Low cost trackers are consistently just above average for their sector year after year - just as you'd expect. Managed funds can be at the top for one year or even five years then bottom the next. The high fees are a major drag on their performance. That's not to say there's not sometimes a case for managed funds if for instance you want a fund with a bias towards income for example.

But always be wary when an IFA tells porkies or gives smoke and mirrors "facts" about tracker funds to justify the funds that pay them high commission and perhaps look elsewhere for advice.