Investment trackers

Toska

Are any of them any good, can anyone recomend one

dunstonh

Nope. Not a fan of these generally.

The most popular ones are UK trackers but anyone putting all their equity linked funds into one of these is really doing themselves no favours.

As repeated in other posts, so apologise to those that have read it before....

The UK has historically been the top performing area once every 5 to 7 years. So, in a 10 year period you will have one or 2 years of top performance.

Since Labour got into power, the UK stockmarket has underperformed other G7 stockmarkets even though the UK economy has performed better. This is largely due to the amount of taxation, or removal of tax credits on various equity backed products. It is estimated that without the removal of the tax credit, the FTSE would be around 5700 at this time. There wouldnt be endowment shortfalls and pensions wouldnt be suffering as they are. And ISAs invested in tracker funds wouldnt have dropped as much as they have.

UK Equity Income funds are out performing UK trackers mainly due to the dividend distributions.

eg, 7000 in an Equity ISA 24 months ago would have an average low cost tracker at £8072 and an average equity & income fund at £8909. That is after a full bid offer spread and annual management charge.

Those in the tracker can be satisfied that they paid less charges than those in the in the equity income fund but are nearly £1000 worse off.

When investing you should invest in various asset classes (UK, Europe, fixed interest, property, North america etc) to average out to suit your risk profile,. With the introduction of fund supermarkets this is much easier as you can have one account spread around in upto 10 areas.

Research has shown that a decent spread of areas accounts more for long term growth than picking the top performing fund, charges or timing.

Walletwatch

Tks DD, very informative and helpful

Seamus

The following quote from the Motely Fool website makes very interesting reading (https://www.fool.co.uk)

Research published by The WM Company in April 2004 showed that over the past 20 years, 82% of active funds failed to beat the benchmark FTSE All-Share Index.

What does this mean ? It's means that 4 out of 5 active funds (the ones the IFA will try and sell you ::)) have performed worse than the FTSE all share index. So a simple/cheap FTSE all share tracker would have outperformed 80% of the managed funds.

With regards to exposure to other markets, all the major companies offering tracker funds have trackers for foreign markets etc.

Don't be put off trackers. They are an excellent and cheap way of investing in the stock market.

Rafter

Tosca,

All Tracker funds aim to track their underlying index whether it is the FTSE100, 250 or all share.

Some do this better than others, and some even beat the index but the idea is that they track.

Management fees then become important.

Another consideration is ethics. Are you happy to have your investments in arms companies or tobacco firms for example?

Ethical firms have underperformed very slightly recently because the cigarette companies havn't been doing as badly as expected, particularly settling their US lawsuits.

Direct Line offer a good ethical ISA that tracks the FTSE4GOOD index if that is the route for you.

Agree you need a diversified portfolio though - my pension fund is certainly less than 50% UK based.

Another recurring theme on the Motley Fool boards is how high yield shares consistently outperform the average. Ie companies that generate cash and pay it to their shareholders outperform those who reinvest profits. You could look at a high yield managed fund if you think this trend might continue.

The best advice my Dad gave me was not to invest in one company or with one investment provider. That way you may get some stars and the occasional dog in your portfolio but overall you are not putting your hard earned savings at too much risk to one market or sector or company.

R.

dunstonh

What does this mean ? It's means that 4 out of 5 active funds (the ones the IFA will try and sell you  ) have performed worse than the FTSE all share index.

IFAs can provide trackers or active managed so dont try and make this a tracker vs IFA issue when it isnt.

What that statement means that on that given period the FTSE tracker funds have performed better.  Take a 10 year period and they would generally be worse.  Eg £100 invested 10 years ago following the Uk Equity Income sector average on 10 years is now £215.88  FTSE100 is £194.21.  5 years ago it would be £105.58 against £82.17.  Virtually all the other UK managed fund sector averages are higher than the tracker.

If you do want to include IFAs in the mix, then look at the top selling IFA fund in the last 10 years and that £100 would now be £436.99 (after charges).  There were points in the last 10 years where the FTSE was outperforming that fund but taking a rigid 10 year period, that fund has more than doubled what the FTSE gave you.

The stockmarket today is not the same beast it was 20 years ago.   Taxation on savings and investment products over the last 5 years has crippled UK stockmarket growth.  So that cannot be compared like for like in the past.   The boom/bust economy has gone for the time being and there are fewer mergers, buy outs and flotations at present.  

You will be able to pick periods when a tracker will be better than a managed fund and vice versa.  If i was to give a generalisation, it would be that trackers are better when it goes up and active managed funds are better when it goes down.

Active managed funds also cover a wide range of areas.   A spread of active managed funds covering a range of asset classes would have wiped the floor with a uk tracker fund.  

Now are they including active managed corporate bond funds, property, europe, UK, Japan, US and other areas?  A tracker may be higher or lower risk compared with those so you shouldnt be comparing like for like.  

A UK tracker over the last 20 years may well of been better than an active managed corporate bond fund but many would prefer the lower volatility that goes with the corporate bond fund even though historically over the longer term the UK tracker has done better.

The best advice my Dad gave me was not to invest in one company or with one investment provider.  That way you may get some stars and the occasional dog in your portfolio but overall you are not putting your hard earned savings at too much risk to one market or sector or company.

Which is the best advice possible and matches research that shows asset allocation is more responsible than any other factor when it comes to investing in equities.

erb

Several years ago I was a supporter of trackers because of lower charges and also read that most fund managers don't beat a tracker. However, with experience I have changed my view.

I now buy funds through a discount broker, often with most of the initial charge rebated and also get an annual rebate. So the charges are not so much of an issue. Also, there are certain fund managers who constistently beat the general share index and these are the ones to invest in.

I still have some investment in trackers as a core holding but the majority is in actively managed funds with the "best" fund managers. Over the last 3 years most of my investments in actively amnaged funds have beaten the tracker. I will be moving money out of trackers and into my favourite funds in future.