Advice on Index tracker

Lokolo

Just quicky for you Dunston, yours shows L&G, is there one with an allround one? (for us that don't just go to L&G)

Also I was looking up the acqusition of New Star and Henderson and it will make them the 5th largest managers in the UK - hoping that will benefit!

dunstonh

Whether its L&G or HSBC or whoever it doesnt matter. they will either be 1 or 2 places higher or lower. They will all be clustered together.

johncolescarr

Reaper wrote: »

O dear. Wrong fund for you then. It invests as follows:

33.3% Australia
21.63% Hong Kong
20.58% Korea
15.02% Taiwan
7.48% Singapore
...
0.59% China
Nothing in India at all.

You really need to read the fact sheets for anything you are thinking of investing with. For starters click here for list of L&G index tracking ISA funds. Click on the one you want for details of where it invests.

I really have a lot to learn, thanks for the info. As a total noob I am trying to find the best route into investing, as with all things in life, the devil is in the detail. As an engineer, I understand (slightly) the manufacturing output potential of the Far East, in particular China and India, this was the basis of my thought to investing in these areas.

johncolescarr

dunstonh wrote: »

Costs are percentage based so it makes no difference if its large or small.


Thats been proven a number of times to be wrong though.

This is really interesting, I want to pursue every avenue since in the long term I envisage that I will be investing more in the future. To be honest, I had pretty much ruled out actively managed funds, but they will now feature in my investment selections

dunstonh

Decide where you want to invest first then decide if a tracker is best or managed fund is best. In some areas a tracker could be best, in others managed. They key is where you invest and that should always be the priority. Charges comes second.

sabretoothtigger

Not many funds like india so you would have to go with something specific really. The lg growth pacific fund has something there but not much, its managed and a bit higher cost.

tbh I'd rather have a tracker type fund for india and developing asian countries.
I dont like paying a spread and no spread means you can decide daily when to withdraw and invest on the highs and lows which is management enough


google hl for details of these funds

chookie1

dunstonh wrote: »

Decide where you want to invest first then decide if a tracker is best or managed fund is best. In some areas a tracker could be best, in others managed. They key is where you invest and that should always be the priority. Charges comes second.

I'm not sure that I agree with you on that. I think charges always come front and centre - assuming that you know where you want to invest. I would always pick eg a FTSE All share tracker over a UK managed fund. Unless you happen to pick an Anthony Bolton then you should do better over the long haul.

Where I think I agree with you is that the key is where you invest and that's the tricky bit - asset allocation accounts for a huge amount of investment performance and it's daft putting all your eggs in the UK basket just because you happen to live there. Maybe you get professional advice on this bit and then invest in tracker funds accordingly.

Aegis

chookie1 wrote: »

I'm not sure that I agree with you on that. I think charges always come front and centre - assuming that you know where you want to invest. I would always pick eg a FTSE All share tracker over a UK managed fund. Unless you happen to pick an Anthony Bolton then you should do better over the long haul.

Would you rather get a 15% return with 0.5% charge or a 20% return with a 2% charge?

Generally speaking, if the managed fund outperforms the index by at least 1% per year before charges, you're likely to beat a tracker fund for that index, and there are many funds which do more than that after all charges are taken into account.

Charges should be secondary to estimated performance. Admittedly estimating the performance can be tricky because there's no guarantee about where the index will be, but you can look at data showing year on year how the fund performed against the index (in bull and bear markets ideally). If the fund manager beats the index in both consistently, then although it's not guaranteed, there's a good chance that he's experienced enough to continue doing so, and a managed fund in that case becomes a better performer than a tracker.

Where I think I agree with you is that the key is where you invest and that's the tricky bit - asset allocation accounts for a huge amount of investment performance and it's daft putting all your eggs in the UK basket just because you happen to live there. Maybe you get professional advice on this bit and then invest in tracker funds accordingly.

Professionals won't in general only recommend trackers. If he looks for professional advice he will probably have some managed funds recommended in addition to trackers in the appropriate sectors.

wriggly

Aegis wrote: »

Would you rather get a 15% return with 0.5% charge or a 20% return with a 2% charge?

Generally speaking, if the managed fund outperforms the index by at least 1% per year before charges, you're likely to beat a tracker fund for that index, and there are many funds which do more than that after all charges are taken into account.

I'd rather get the 20% return with the higher charges. Now, which fund achieved 5% over an index consistently for the last 5 years, and will achieve this consistently for the next 5 years?

Your second paragraph is wrong, and simple to demonstrate as wrong. Let's assume an index fund with expenses of 0.5% gains 6% in a year and a managed fund with expenses of 1.5% gains 7% (these are similar to the values used in prospectuses).

Invest £1000 in both, take off the expenses and add the gain:
Index fund: 1000 x 0.995 x 1.06 = £1054.70
Managed fund: 1000 x 0.985 x 1.07 = £1053.95

Not a lot in it, admittedly, but you still need to get that 1% extra in the managed fund, whereas the 1% saving in fees is guaranteed.

Aegis

wriggly wrote: »

I'd rather get the 20% return with the higher charges. Now, which fund achieved 5% over an index consistently for the last 5 years, and will achieve this consistently for the next 5 years?

This one's done fairly well:
http://trustnet.com/Factsheets/Factsheet.aspx?fundCode=PPHI&univ=U

More than 5% over the index for 4 consecutive years and still over the index (but not by 5%) in the year before that. One of my favourite holdings at the moment.

Your second paragraph is wrong, and simple to demonstrate as wrong. Let's assume an index fund with expenses of 0.5% gains 6% in a year and a managed fund with expenses of 1.5% gains 7% (these are similar to the values used in prospectuses).

It's not wrong, you and I just used different assumptions. I assumed that the average managed fund should cost about 1.25% to hold with a discount broker. With a tracker costing about 0.5% on average (more if you hold it as part of a fund supermarket because of the reduced trail commission, but let's ignore that now), a 0.75% additional cost should be easily overcome by a 1% increase in performance.

Invest £1000 in both, take off the expenses and add the gain:
Index fund: 1000 x 0.995 x 1.06 = £1054.70
Managed fund: 1000 x 0.985 x 1.07 = £1053.95

With my figures the managed fund comes out ahead. Of course, that's the bare minimum, and I wouldn't generally be interested in investing in a managed fund with a track record of barely managing to beat the index. I'd prefer to see returns similar to the High Income fund I linked to above, 10% over the index so far this year.

Not a lot in it, admittedly, but you still need to get that 1% extra in the managed fund, whereas the 1% saving in fees is guaranteed.

Agreed, see above for why I wouldn't want to invest in a fund that was only beating the index by 1% each year.