Tracker Funds?

trumbo

I am thinking about putting some money into a Tracker Fund, tracking the FTSE 100 or all share.....

I am currently reading Motley Fools guide to UK investments and these types of funds seem quite good to get into as historically they have given good returns, anyone have any pointers on where I should look, do they pay an interest as such, how do they actually make you money? I would re-invest any profits.....

Tried Trustnet but alot of funds have silly initial charges (upto 3.5%) and a yearly charge (1% +), looked at Nationwides tracker and they have no intial charges, is this any good?

I am not looking to make fast money and am hoping say 8-12% a year over the forseable future 5+yrs maybe even till I retire....

I have tried my hand with small money through the halifax sharebuilder and will continue to do so over the next few years but picking good companys is a challenge (headache) so would prefer to just follow the FTSE as a whole (far easier)......

Jim_B_3

I recommend you look at M&G's trackers.

https://www.mandg.co.uk

trumbo

Cheers I shall check them out.... also I have found lots of good info... on the 'Index Trackers' board on the Motley Fool website....

EdInvestor

Since you already have the Sharebuilder account you could try ETFs.

https://www.ishares.com

A tracker fund in a share

Cheaper than the funds and more variety of indices too.

dunstonh

I am currently reading Motley Fools guide to UK investments and these types of funds seem quite good to get into as historically they have given good returns,

MF's article on trackers is only one side of the story. For example, if you invested in a FTSE100 tracker 6 years ago, you wouldnt have made a penny to date. Also, you would have suffered a 40% loss in 2001/2 which is above the average person's risk tolerance.

Trackers have their place in any diverse portfolio but you should never put all your money into one sector.

ec9wrr

Have you taken a look at Fidelity Money Builder UK Index?
https://www.fidelity.co.uk

baldbloke_2

dunstonh wrote:

MF's article on trackers is only one side of the story. For example, if you invested in a FTSE100 tracker 6 years ago, you wouldnt have made a penny to date. Also, you would have suffered a 40% loss in 2001/2 which is above the average person's risk tolerance.

Trackers have their place in any diverse portfolio but you should never put all your money into one sector.

I have often felt totally disheartened upon reading the info you give on the performance of the FTSE100 in that particular year - and wonder momentarily why anyone would ever invest in Equities if such a sudden and dramatic loss is likely. But in order to steady my nerves - and Investment nerves I have aplenty! - I wonder how the same index had performed in the period leading up to the fall.

For example would a monthly investment of say £100 between 1998 and 2001 have really seen a loss of such magnitude in the amount actually invested or would it only be seen in the value of the investment at the start of the period of decline.

I distinguish between the two because I find weekly gains and losses on Funds of 3%+ over the past few months utterly ridiculous and as a person interested in the returns on my 'savings' I can not really treat investments as a serious proposition at present even though I continue to invest in a couple of funds. One feels trapped between a rock and a hard place when one sees the value of investments increase in a few days at a rate that would take a year to achieve in a secure savings account - such gains are attractive but ephemeral - tomorrow may see the start of another steep decline.

It all appears more akin to gambling than to the responsible guardianship of part of one's assets - and 40% in a year or so in either direction should not be acceptable to anyone other than the chancers amongst us.

I remain a worried man.

dunstonh

I have often felt totally disheartened upon reading the info you give on the performance of the FTSE100 in that particular year

Its not just that year. Its been poor for some time now.

The point is not to avoid investing in it but not to put all your money into that one basket. The FTSE100 is just a very good example of that. Equally you could use any US fund as an equally good example.

cheerfulcat

baldbloke wrote:

I have often felt totally disheartened upon reading the info you give on the performance of the FTSE100 in that particular year - and wonder momentarily why anyone would ever invest in Equities if such a sudden and dramatic loss is likely. But in order to steady my nerves - and Investment nerves I have aplenty! - I wonder how the same index had performed in the period leading up to the fall.

For example would a monthly investment of say £100 between 1998 and 2001 have really seen a loss of such magnitude in the amount actually invested or would it only be seen in the value of the investment at the start of the period of decline.

I distinguish between the two because I find weekly gains and losses on Funds of 3%+ over the past few months utterly ridiculous and as a person interested in the returns on my 'savings' I can not really treat investments as a serious proposition at present even though I continue to invest in a couple of funds. One feels trapped between a rock and a hard place when one sees the value of investments increase in a few days at a rate that would take a year to achieve in a secure savings account - such gains are attractive but ephemeral - tomorrow may see the start of another steep decline.

It all appears more akin to gambling than to the responsible guardianship of part of one's assets - and 40% in a year or so in either direction should not be acceptable to anyone other than the chancers amongst us.

I remain a worried man.

This is what gets up my nose about the whole financial services industry - it wants to frighten people into buying its products. Baldbloke, I am an ordinary person with no financial industry background. I have been an investor for nearly twenty years and for the last three years have relied almost entirely on my investments ( mostly directly held shares ) for my income. Yes, there are daily fluctuations in the value of my portfolio. But over time the general direction has been up. And I can honestly say that I have never, ever seen a 40% drop in one year - but then I don't invest in the latest fads.

The monthly investment you mention, if it had continued until now, would actually be showing a handsome gain because when the FTSE was down you would have been able to buy more shares or units with your money. Buffet ( or was it Graham? ) made an analogy with hamburgers; if you are a net buyer of hamburgers, do you want them to be cheap or expensive? Trackers are not riskier than most equity based funds; most funds are closet trackers anyway. The industry just wants you to think that they are high risk because it would prefer that you bought expensive products with comforting names...

If you feel uncomfortable with your investments I suggest a little reading; sometimes, all you need to master something is to understand it. You could start with something jolly like Where are the Customers' Yachts?, then something practical like the Motley Fool UK Investment Guide. The Penguin Guide to Finance, if you can get hold of it, is also useful, as is Alvin Hall's book Winning with Shares.

Please do not make the common mistake of thinking of investing as gambling - when you invest in a company you are buying a tiny part of it; you are not having a bet with a third party on its fortune. If you don't believe in the company don't buy in. Managed funds go a step further; you have to trust the manager as well.

Cheerfulcat

PS Again, this is not a dig at IFAs in general as sometimes I think that they are as much victims of the industry as their clients.

EdInvestor

Trackers are not riskier than most equity based funds; most funds are closet trackers anyway.

Actually IMHO most of them are riskier, for several reasons:

#they are weighted by market cap - the bigger the size of the company (ie the higher the share price) the more of it you own.This means that a)you are invested in the more expensive shares and b) with the UK indices, you are mainly buying bank and natural resources shares which are the dominant big listed companies.So you rely in these two sectors doing well, there is little diversification, which is risky. Other funds may hold many of the same shares, but they do not have the same weighting, so they are less risky.

#Trackers must follow the index, whether it goes up or down and managers cannot make any defensive moves to moderate losses if there is a big crash.=

#Allthough their charges are low (the tracker's big plus point), make sure they are not extracting an extra stealth charge from the dividend yield, which should be more than 3%. Some trackers have a yield of zero.

It is true that trackers will beat 80% of manged funds, but that just tells us that we don't want to invest in these rubbish managed funds,but rather in the 20% of managed funds which outperform the market.

Most UK investors are rather risk averse and thus want this outperformance without taking undue risk. They are thus better suited to Equity Income funds than trackers IMHO. Equity income funds also hold big blue chips, but usually they are much more sector diversified and specialise in more defensive shares with higher dividends, which help to boost returns in times of trouble.

It was very obvious that this type of fund did much better in the crash a few years ago.

https://www.citywire.co.uk/Funds/Home.aspx

This site lists the top performers in all the categories, check under Equity Income funds and you will see what I mean.

cheerfulcat

EdInvestor wrote:

#Trackers must follow the index, whether it goes up or down and managers cannot make any defensive moves to moderate losses if there is a big crash.

But benchmarked funds ( ie most of them ) do exactly the same. Plus expenses.

It is true that trackers will beat 80% of manged funds, but that just tells us that we don't want to invest in these rubbish managed funds,but rather in the 20% of managed funds which outperform the market.

Yes, if you want to outperform the market and if you are willing to devote the time and attention to your investments. If you just want to fire and forget, as most people seem to, then trackers are ideal. Doesn't have to be a FTSE tracker, either; I am very happy with the high yield ETF.

Most UK investors are rather risk averse and thus want this outperformance without taking undue risk. They are thus better suited to Equity Income funds than trackers IMHO. Equity income funds also hold big blue chips, but usually they are much more sector diversified and specialise in more defensive shares with higher dividends, which help to boost returns in times of trouble.

I am as big a fan of HYPs as you are but that doesn't blind me to the fact that they carry a fair amount of market risk. People may well want to have their cake and eat it but they can't. Reward = risk; them's the rules.