Cheapest FTSE All share Tracker

dunstonh

Why is it that there is never any evidence from those that say trackers are best and why are they so biased towards it even if it means that they will miss opportunities?

We know the FTSE100 trackers have spent most of the last 10 years in the bottom 10% of funds and FTSE all share trackers will be around mid table. Evidence has frequently been provided and is freely available on sites like trustnet and morningstar.

We also know that its not whether its a tracker or managed that matters. Its where you invest that matters (reflected in the growth years where both mid cap managed funds and FTSE250 trackers were top of the pile for long periods). Its fine if a tracker exists in that area but what about the areas where they dont? Do you refuse to invest in that area?

Blah99

dunstonh wrote: »

We also know that its not whether its a tracker or managed that matters. Its where you invest that matters (reflected in the growth years where both mid cap managed funds and FTSE250 trackers were top of the pile for long periods). Its fine if a tracker exists in that area but what about the areas where they dont? Do you refuse to invest in that area?

Quoted for emphasis.

max11

Aegis wrote: »

. If we're looking for non-sector-specific UK investments, then the FTSE100, 250 and AllShare are pretty much the only applicable indices to compare the performance of managed funds to, and if you take the good managed funds.

for example, which one?:o

Aegis

max11 wrote: »

for example, which one?:o

Take a look at Invesco Perpetual's High Income funds for one that has outperformed the index pretty much every year in the last decade or so.

Aegis

SnowMan wrote: »

I am certainly not getting into a long debate about this. So this really is my last post.

But the obvious flaw to your arguments is that you are able to choose a managed fund that will achieve 10% per annum in a market where the index is going up at 5%. You have supplied no evidence to back this up, and I have never seen anyone else produce credible evidence to back this up. But I have seen plenty of flawed arguments trying to back up something like your claim usually on the basis of past performance figures.

It's merely a hypothetical question to illustrate why charges are secondary to performance. However, it demonstrates the principle nicely: that it would be foolish in the extreme to pass up on higher performance to save some money. I think everyone would agree that the total returns are what matter.

Now, you've claimed that basing the claims on past data is flawed. I agree that past performance is no guarantee of future performance, but if you find a fund manager who has managed to beat the index 95% of the time over the last 10-15 years with a cumulative performance several times better than the index, would you conclude:

1. pure chance, no skill involved, or
2. something that allows this manager to do pretty well compared to the index.

To create another analogy, imagine a Judo competition where you have someone who has won a medal 50 times in a row and someone else who has placed in the middle 50 times in a row. Compare one against the other and you might say "past performance is no guarantee of future performance" and imagine that the outcome is pretty much random, or you might think that the previous winner is generally a better performer in this particular arena. There's always going to be an element of chance in there, but to disregard all past data simply because it's no guarantee of future data is absurd. Even science doesn't hold itself to that standard. Instead science relies on confidence intervals for probability tests to allow prediction of future data based on the past, and if science can get away with it I think investors can do the same.

As such, if I find a fund manager who consistently beats the index year on year, I'm going with him rather than the tracker.

The question you should be asking yourself should be “would you rather have a fund that has 5% growth with a charge of 0.3%, or 5% growth with a charge of 1% or more? And if you do the sum of the consequences over long periods, that is where you start losing big money.

No, that's the wrong question restated. Funds do not have equal returns, so assuming identical performance is a terrible way to make your decisions. Instead you should take a look at past performance, try to work out what made that past performance work and decide if you still have confidence that this manager can continue to add value above the index. If you don't have that confidence, pick a different manager or use a tracker. If you have confidence, go with it and check up on your choice every now and then.

I realise you will never change your view on this. But my objective is to warn others to think about this and come to their own conclusions either way.

No question. One of my golden rules is to do your own research. The trouble is that when people actually look at the figures, they usually see that the trackers perform middle of the table, the bank managed and passive funds fall beneath them and the decent fund house managed funds tend to beat the trackers. The performance tables simply do not lie, if anything they underestimate how much managed funds can outperform the trackers because the trackers aren't usually eligible for further reductions in their charges through a discount IFA.

And don’t forget us with the tracker funds rely on the active fund believers. If trackers became more popular then the market would become less perfect because there would be less research about and there might then be a real chance to consistently beat the index. So I should be saying thank you so much for spreading the message that active funds are better than trackers.

In certain situations they demonstrably are better. In others they're not. If you close your mind to the alternative because you're too fixated on the charges, it's your loss.

max11

Ok thank you very much!
I think I choose for my first portfolio ever (!):
F & C FTSE All Share Tracker Fund Class 1 Accumulation Units £1000 (o,40%)
Legal & General US Index Retail Accumulation Units £1000 (0,78%)
M & G European Index Tracker Fund Class A Accumulation Units £600 (0,71%)
INVESCO PERPETUAL High Income Accumulation Units £1000 (1,68%)

(the "problem" is the minimum investment £1000!)

What I didn't find anything about is if there is any exit fee with H-L?.
does any one have any clue?

Aegis

max11 wrote: »

Ok thank you very much!
I think I choose for my first portfolio ever (!):
F & C FTSE All Share Tracker Fund Class 1 Accumulation Units £1000 (o,40%)
Legal & General US Index Retail Accumulation Units £1000 (0,78%)
M & G European Index Tracker Fund Class A Accumulation Units £600 (0,71%)
INVESCO PERPETUAL High Income Accumulation Units £1000 (1,68%)

(the "problem" is the minimum investment £1000!)

What I didn't find anything about is if there is any exit fee with H-L?.
does any one have any clue?

There's no exit fee for OEICs (which I believe all your fund choices are examples of). Don't worry too much about the £1000 minimum investment, just call HL and ask them if you can put a smaller amount into some funds. I've managed to get down as low as £250 before for a couple of popular funds, so you shouldn't have too hard a time.

Also consider the possibility of setting up a drip feed rather than a single lump sum investment. HL will set you up regular savings as low as £50 a month per fund, and that might help smooth out the volatility.

Be wary about holding trackers with HL, though, as they will occasionally charge you for the privilage:

Is there any charge to hold funds in the Vantage Fund Account?

No. We do not currently charge to hold funds in the Vantage Fund Account. Please note for the few funds for which we do not receive renewal commission, the Vantage ISA annual management fee will apply. This is 0.5% + VAT (up to a maximum of £200 + VAT) per year

Also, don't just go with the first managed fund you see recommended. That High income fund has quite a lot of potential overlap with your AllShare tracker and the US retail tracker too, as some of the top holdings in the High Income fund are large US/UK retail companies. Look around, do your own research and decide how well it fits your portfolio.

max11

thank you, many precious advices!

Aegis wrote: »

There's no exit fee for OEICs (which I believe all your fund choices are examples of). Don't worry too much about the £1000 minimum investment, just call HL and ask them if you can put a smaller amount into some funds. I've managed to get down as low as £250 before for a couple of popular funds, so you shouldn't have too hard a time.

I will try to call them.

Also consider the possibility of setting up a drip feed rather than a single lump sum investment. HL will set you up regular savings as low as £50 a month per fund, and that might help smooth out the volatility.

Yes, could be helpful in the future (now I have to pay into my ISA allowance), even if this is a mechanism I haven't understand 100%, but I found just today an interesting article on that.

Also, don't just go with the first managed fund you see recommended. That High income fund has quite a lot of potential overlap with your AllShare tracker and the US retail tracker too, as some of the top holdings in the High Income fund are large US/UK retail companies. Look around, do your own research and decide how well it fits your portfolio.

It seems a good fund, I figured out it was similar to FTAS, but not to the US market tracker.
the problem is that there are hundreds of them and do not know where to start! From the wealth 150?

Aegis

max11 wrote: »

thank you, many precious advices!

I will try to call them.
Yes, could be helpful in the future (now I have to pay into my ISA allowance), even if this is a mechanism I haven't understand 100%, but I found just today an interesting article on that.

It seems a good fund, I figured out it was similar to FTAS, but not to the US market tracker.
the problem is that there are hundreds of them and do not know where to start! From the wealth 150?

Probably not the Wealth 150. A number of those are simply flavour of the month investments, and some of my favourite managed funds aren't in there for whatever reason. You'd be better off browsing the sector listings on citywire and trustnet to find funds you like.

SnowMan

Aegis wrote: »

Now, you've claimed that basing the claims on past data is flawed.

I'm not entering into a long discussion on this. It's been debated enough already.

But worth saying that the Financial Services Authority came to that conclusion back in 2000

http://www.fsa.gov.uk/Pages/Library/Communication/PR/2000/107.shtml

To quote from that

"In practical terms, this means that investors would not find it useful to examine funds past performance in making investment decisions"

So they are saying your method of selecting outperforming funds based on past performance doesn't work.

If you toss a coin 1000s of times there will be long runs of heads and tails it doesn't mean the coin is biased. That is how probability works and is a possible explanation for any run of outperformance. Of course excessive risk taking etc etc are other explanations.

I am certainly open-minded to the possibility that active funds that outperform can be chosen. I just haven't seen any evidence of it to date. Hence my personal decision to go down the tracker route.