Has a FTSE tracker ever been a "good" investment?

sh856531

Hi all,

I've been looking around at various investment options over the past few months with a view to getting better returns than just keeping my savings as cash.

Many articles by experts have been written stating that over the long term index trackers are very often better than actively managed funds, because they attract far smaller management fees. I know a few people that have taken this advice and just gone with it and invested in a tracker that tracks the FTSE 100.

The problem is, as far as I can see the FTSE 100 has never been particularly good in terms of its returns. I don't have any definate figures, but I seem to remember reading that since it started, it has average something like 6%, which until recently wasn't actually any better than having it in an instant access ISA.

Looking at the fund league tables that I've happened across all of the funds in the top 10 all beat the FTSE by a good margin and some of them have done so consistently over a number of years.

It could be that I am misreading the figures that I've seen but I was wondering if anyone had any strong thoughts on investing in trackers? Is the received wisdom about trackers being "good" actually a load of !!!!!!!!, or am I painting to rosy a picture of unit trusts/funds etc

Many thanks in advance

S

dunstonh

The problem is, as far as I can see the FTSE 100 has never been particularly good in terms of its returns.

Not for about the last 15 years. If you invested 10 years ago, a FTSE100 tracker would have been in the bottom 6% of funds.

Is the received wisdom about trackers being "good" actually a load of !!!!!!!!,

No not as bad as that. Some areas are worth having trackers, some managed. However, a lot of the tracker debate comes from the US and not the UK where trackers and managed funds work differently to the UK and the US system favours trackers. Also, one of the largest campaigners for trackers in the UK is motley fool. However, guess which products they retail and get kick backs on? (trackers obviously).

Apolgies to regulars for copying and pasting it again but it is useful for someone in this case......

<copy and paste on>
I have put the percentile in brackets. Sector average is mid table so would be 50. If a fund is (1) that makes it top. If it is (100) it makes it bottom. Each year is the discrete performance (that year only) I have also topped it off with the 10 year cumulative figures (if you started 10 years ago what would you have averaged)

[php]Year Sector Average L&G 100 L&G all share

1996 16.62 13.75 (73) 15.15 (60)
1997 18.29 26.99 (13) 22.01 (46)
1998 9.78 15.22 (23) 13.13 (35)
1999 26.07 17.30 (89) 23.18 (54)
2000 -4.58 -9.78 (89) -5.73 (53)
2001 -14.67 -15.41 (68) -13.17 (38)
2002 -23.55 -23.88 (58) -22.97 (42)
2003 22.66 15.32 (96) 19.99 (57)
2004 12.65 8.69 (85) 11.88 (48)
2005 21.23 17.94 (83) 21.11 (43)
2006 17.46 12.39 (89) 16.42 (53)
2007 1.62 4.83 (34) 4.45 (37)
10 year cumulative
5.55% 3.18% (94) 5.68% (46)

[/php]

So, we can see from those figures supplied by Financial Express that neither the FTSE100 or FTSE index trackers from L&G have managed to enter the top 10% of funds at any point since 1996. The L&G 100 did come close in 1997 by hitting 13% but over 10 years but spent most of the time at the bottom end. It had a cumulative return that put it ranked at 94%. You would have had a harder job picking a managed fund that fell into the bottom 6%. Also, the all share can be seen to be more consistent at the mid table range as you would expect.
<copy and paste off>

lynzpower

So, we can see from those figures supplied by Financial Express that neither the FTSE100 or FTSE index trackers from L&G have managed to enter the top 10% of funds at any point since 1996. The L&G 100 did come close in 1997 by hitting 13% but over 10 years but spent most of the time at the bottom end. It had a cumulative return that put it ranked at 94%. You would have had a harder job picking a managed fund that fell into the bottom 6%. Also, the all share can be seen to be more consistent at the mid table range as you would expect.
<copy and paste off>

I have an L&G ethical tracker :rolleyes: Its lost about 1.3rd but is up again a bit at the moment- if you were me would you cash it in?

sh856531

Not for about the last 15 years. If you invested 10 years ago, a FTSE100 tracker would have been in the bottom 6% of funds.

Thanks Dunston.

I've always had a hunch that the "tracker beats managed" argument only really ever applied to US markets - if it ever applied at all. Looking at the Dow Jones for example, I can see that the return looks relatively ok over the long term. I always put it down to the fact that the US economy has always been more dynamic than that of the European countries - even the UK - albeit at the expense of say, health care for the poor!

It seems to me to be pretty ridiculous that the Moteley Fool is perpetually recomending investment in FTSE trackers when as you say, those products consistently fall in the bottom 6% of all funds. I always thought that MF was supposed to be independent and could be relied upon for good advice but I've long suspected that they were way off as far as FTSE trackers were concerned.

You've pretty much confirmed what I always had a hunch about.

Many thanks

S

john_s_2

You might want to read through the first part of this thread, which I started a while ago, asking a similar question to you.

http://forums.moneysavingexpert.com/showthread.html?t=1476737

Dunston kindly shared his/her wisdom with me (including the table s/he pasted above), but there are a few points made to consider favouring trackers on some occasions.

sabretoothtigger

I agree the ftse has been poor both now (obviously) and even in the good years it wasnt that great.

Over the last ten years its been pretty bad, I dont know before that but somewhere like India was amazing compared to the ftse in this decade

Still there is a better case to invest now then there was previously as a price drop will bring some better value as well as reflecting the falling profits

You need to consider if you think these 100 shares are really what you want to invest in.
I think as a uk resident you are already invested heavily in the fortunes of this country personally so investing elsewhere is a good hedge against us suffering worse then other countries

A couple of the biggest shares are international operations like HSBC but if you like them you could just put in 50 a month separately anyway

Also I believe an international fund or tracker would be a hedge against currency movements though we've already fallen back, the dividends would increase as our currency fell or thats how I think it works


If you're already in the index you need to consider if it will fall much further, I felt start of Jan was far too optimistic but right now I would not call it
The yield appears quite good, better then I ever remember previously but many shares will in future pay nothing or less then before



India vs

Lansdowne Partners, one of Mayfair's largest and most successful hedge funds, has taken £100m in profits from short-selling shares in Barclays and has told its investors it now believes the British banking sector is undervalued, writes the Observer.

http://www.h-l.co.uk/shares/Press-round-up/articles/2634558?rq=article

dunstonh

The statement that MF should use is that when compared to managed funds with the same objective, a tracker should beat the managed fund 9 times out of 10. Problem is that managed funds dont often have the same objective.

Given the choice of a passive managed fund or a tracker then its a tracker you should go for. Banks and insurance companies are typically rubbish at equities so you can rule them out as well. General UK growth funds I am no fan of either (prefering funds with objectives, such as equity income, value etc). So, eliminate those and you are left with smaller range that gives you more potential. Japan is a good area for a tracker though. Mainly as managed funds are not widespread in that area and many dont do that well.

Its where you invest, not whether its tracker or managed. Mid caps had a good run in the growth years and FTSE 250 trackers were top of the pile just ahead of the mid cap managed funds. So, dont rule trackers out. Just be objective with it and think more about where you want to invest first before the how will you invest.

nrsql

Depends what you are looking for.
You will notice from the table that Dunstoh posted that the all-share tracker ranges between 36 and 60 - usually quite close to but better than the sector average.
Sure you will miss out on the star performers but you will also miss out on the dogs. Important if you don't want to continually research the funds you are invested in.

Remember it is more important to avoid big losses than to get big gains.
If you lose 50% one year then gain 50% the next or vice versa (performance here is given by annual percetages) then you will end up with a 25% loss.

When considering long term performance figures are also misleading - if a fund is performing badly then it will usually not attract money and will be dropped/renamed/merged. This means that badly performing managed funds will disappear and it will improve the average perfomance. Of course trackers should not perform badly and so should be in existance for longer.

Also interesting that trackers are meant to suffer when the market drops but during the three years of negative growth we get 53, 38, 42 - so it acually did pretty well compared to the average.