Tracker or managed fund?

EdInvestor

cloud_dog wrote:

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).

Why choose Growth funds? They tend to be like trackers, only do well when markets are going up.Equity income funds however tend to do comparatively well all the time and can be easily turned into growth funds by chooseing the version that reinvests the income.

I'd also have thought that a novice investor who had no idea what s/he was doing, just picking a fund out a great long list, is rather less likely to pick a dud Equity Income fund than a dud Growth fund.

Just one thing to note, we're talking about Equity income funds here, that invest in shares.There is another type of income fund that invests in bonds. These latter funds are lower risk and suitable for older people who want an actual income paid out, not reinvested.

cheerfulcat

carnet 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.

Hello, carnet,

I worded that very badly! What I meant was that, to take full advantage of the pound-cost averaging effect it would be best to make regular contributions more frequently than once a year, ie, monthly.

carnet

cheerfulcat wrote:

Hello, carnet,

I worded that very badly! What I meant was that, to take full advantage of the pound-cost averaging effect it would be best to make regular contributions more frequently than once a year, ie, monthly.

I think I knew what you meant CC .

My point was merely that, in general, regular (monthly) investments into funds etc. with relatively low volatility ie bonds, trackers etc. (whilst very laudable nonetheless) does not make the most of the PCA effect.

Whereas with higher risk/reward funds, where prices can fluctuate wildly by comparison .....:)

cheerfulcat

Too subtle for me, carnet

kenshaz

regular amounts to allow for price changes when you buy,some months you buy cheap other times not so ,so on average you gain,tracker because of the fee as low as .5 %,against management funds of 4 or 5 %,

cloud_dog

kenshaz wrote:

regular amounts to allow for price changes when you buy,some months you buy cheap other times not so ,so on average you gain,tracker because of the fee as low as .5 %,against management funds of 4 or 5 %,

Kenshaz, no one has to pay the full management charge, you just need to go through a discount broker, some will even refund some of their annual commission. I would suggest that low management charges are not the be all and end all of investing. I'm quite happy for a good fund / manager to have his cake from my money if they consistently outperform.

cloud_dog

dunstonh

More and more IFAs are waiving some or all of the initial commission nowadays on full advice transactions. So, if you still value advice, there are IFAs out there who can do it with no initial charge. It may take a few phone calls and it may depend on the amounts being invested but they are out there.

cloud_dog

EdInvestor wrote:

Why choose Growth funds? They tend to be like trackers, only do well when markets are going up.

I think you can throw that comment at any investment vehicle that invests in constituents that make an index - null point. The difference is that a tracker will track an index down, whereas a managed fund has the option of holding a percentage of cash or by diversifying into defensive stocks, etc, etc. (1 - 0)

Equity income funds however tend to do comparatively well all the time and can be easily turned into growth funds by chooseing the version that reinvests the income.

Thats a very general statement which is difficult to qualify but....... a quick search on trustnet for UK UT's / OEIC's over five years (includes recent ups and downs) shows the following for the top performing fund:

UK Growth: 105%
UK Income: 85%
UK Growth and Income: 65%

The reason I pick growth as opposed to income is principly because stocks that generate income tend to be established or relatively mature companies who have the available cash flow to pay dividends. Young companies tend to re-invest the majority, if not all (plus possibly more - debt) so as to grow the company / market share. If you accept this premise as being reasonable then income funds must, by default, ignore stocks that do not generate an income, as investing in these companies would reduce the ROI thereby reducing their yeild. Hence (for a new investor, possibly relatively young) to focus on growth funds. I do not discount the value of income funds. (2- 0)

I'd also have thought that a novice investor who had no idea what s/he was doing, just picking a fund out a great long list, is rather less likely to pick a dud Equity Income fund than a dud Growth fund.

OK, I have to admit to assuming people understand the concept of sorting the list by their performance; possibly a mistake I grant you. So, for the uninitiated on some sites (like the ones mentioned) where they state the performance (possibly over varrying number of years) they will either display the list in performance order (best at the top) or you can sort them by performance by clicking on the column header. I would recommend you consider theose funds with consistenly average high positive numbers. Please ignore funds that have a "-" by the side of the number; this indicates a negative number. When looking for investments negative numbers are bad. (3 - 0)

cloud_dog
p.s. I hope you recognise that a lot of the above was tongue in cheek ;-)

carnet

cloud_dog wrote:

income funds must, by default, ignore stocks that do not generate an income,

Not necessarily so.

What about the income funds run on a barbell* basis by such successful exponents as Ted Scott and George Luckraft ?

* high yielding stocks at one end to provide the income and growth/small caps etc. at the other to provide the growth element.

cloud_dog

Carnet I accept and agree with your point.

In my defence (your honour) I would state that I did advise the OP (earlier) to look at consistently good performing managers - I tend to follow managers rather than a hot fund. https://www.BestInvest.co.uk provdes the ability to research and list by manager performance rather than fund, and Mr Luckraft appears as number 8 over 5 years for "all" sectors - so a very good manager. Mr Scott doesn't appear in the top 20 so I cannot comment.