Tracker Funds?

EdInvestor

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.

But not as much as trackers.That's all I'm saying.

People may well want to have their cake and eat it but they can't.

You can still get good returns at lower risk.Anyone who's invested in either equity income funds/HYPs over the last 5 years can see that.The FTSE100 investor will still be making a loss and the other investor will be up 50% at least.

The biggest risk often leads to the biggest loss, not the biggest reward.Remember tech funds?

cheerfulcat

The biggest risk often leads to the biggest loss, not the biggest reward.Remember tech funds?

That is what risk is! There is usually no big possible upside where there isn't at least an equivalent possible downside.

You can still get good returns at lower risk.Anyone who's invested in either equity income funds/HYPs over the last 5 years can see that.The FTSE100 investor will still be making a loss and the other investor will be up 50% at least.

The regular investor in the FTSE100 will be doing very well. A regular investor in the All Share would probably be even better off; certainly my All Share trackers, bought in 2001 and 2002, would be well in the money had I kept them and I was showing a profit when I swapped them for oils a year ago...

baldbloke_2

cheerfulcat wrote:

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?

Firstly - I must say a big thank you to Dunstonh & Cheerfulcat - whose replies to my occasional posts are always interesting and helpful. They make me think again about a position I had resolved to hold against all challenges!

Oh Well Never Mind!

I like the hamburger analogy - apart from the US flavour - but I shake my head in bemusement through the whole process. I want the market to fall as I am about to buy and then to rise should I decide to sell! There's no logic to the act of investing if I am to wish for different outcomes to the same daily events based on my personal calendar. It's fascinating and gripping but it's not good sense nor good management of meagre resources.

I am down to £150 pcm spread across 3 funds (FTSE All-Share, FTSE 100 + Ethical) these days - all with L&G - and I intend to never allow this fantastic game to involve over time more than 10% of my money so the risk is limited to that portion of my savings. That may be 'sad' but at least I recognise my own risk level and I suggest others seriously consider their attitude to risk as properly recommended by Dunstonh, EdInvestor et al. The problem is that the returns can be spectacular if the investment is managed properly and with good timing (in hindsight!). There I go again! Damn you MSE!

dunstonh

This is what gets up my nose about the whole financial services industry - it wants to frighten people into buying its products.

We can't win. We get moaned at when we dont point out all risks and then moaned at when we do.

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 last 3 years have been very good and you should never measure the quality of a portfolio on the good years but the bad.

Just because you havent seen a 40% drop (yet) doesnt mean others havent. It is a fact that had you invested in 2001, you would have seen a 40% drop in value had you invested in a FTSE Tracker. If you can stomach that and accept it can happen from time to time then that is fine and confirms that you have the correct risk profile to invest that way. However, if you would panic at your valuation dropping by 40% then you shouldnt invest your money in a fund with that risk (unless offset with lower risk funds).

Trackers are not riskier than most equity based funds;

Depends on what equity based fund you are comparing it to. Compare it to an equity income fund or a equity and bond fund then it is higher. Compare it to an emerging market fund and it is lower.

The industry just wants you to think that they are high risk because it would prefer that you bought expensive products with comforting names...

No. It wants you to think that it is medium/high risk because it is. Any fund with a 40% potential volatility is medium/high risk.

The regular investor in the FTSE100 will be doing very well. A regular investor in the All Share would probably be even better off;

Nope, equity income beat it quite easily (equity income being closest match to HYP). A sector allocated portfolio of equal risk to HYP or the higher risk tracker would have beaten it by even more.

cheerfulcat

dunstonh wrote:

We can't win. We get moaned at when we dont point out all risks and then moaned at when we do.

Not at all - my complaint is that the industry tries to make people fear holding shares directly.

The last 3 years have been very good and you should never measure the quality of a portfolio on the good years but the bad.

Just because you havent seen a 40% drop (yet) doesnt mean others havent. It is a fact that had you invested in 2001, you would have seen a 40% drop in value had you invested in a FTSE Tracker. If you can stomach that and accept it can happen from time to time then that is fine and confirms that you have the correct risk profile to invest that way. However, if you would panic at your valuation dropping by 40% then you shouldnt invest your money in a fund with that risk (unless offset with lower risk funds).

I have been investing for nearly 20 years and have never had a 40% drop in my portfolio. Yet. I did invest in a FTSE tracker in 2001 and liked it so much I did the same again in 2002. I live off my investment income and am comfortable so doing. Capital fluctuations are part of investing and must be expected.

Depends on what equity based fund you are comparing it to. Compare it to an equity income fund or a equity and bond fund then it is higher. Compare it to an emerging market fund and it is lower.

Compare it to the funds which are benchmarked to it.

No. It wants you to think that it is medium/high risk because it is. Any fund with a 40% potential volatility is medium/high risk.

Including any fund benchmarked to the FTSE100.

Nope, equity income beat it quite easily (equity income being closest match to HYP). A sector allocated portfolio of equal risk to HYP or the higher risk tracker would have beaten it by even more.

That the HYP beat the FTSE is not in question. I was responding to Ed's assertion that an investor in a tracker over the last five years would necessarily be showing a loss. It is incorrect.

cheerfulcat

baldbloke wrote:

I like the hamburger analogy - apart from the US flavour - but I shake my head in bemusement through the whole process. I want the market to fall as I am about to buy and then to rise should I decide to sell! There's no logic to the act of investing if I am to wish for different outcomes to the same daily events based on my personal calendar. It's fascinating and gripping but it's not good sense nor good management of meagre resources.

I am down to £150 pcm spread across 3 funds (FTSE All-Share, FTSE 100 + Ethical) these days - all with L&G - and I intend to never allow this fantastic game to involve over time more than 10% of my money so the risk is limited to that portion of my savings. That may be 'sad' but at least I recognise my own risk level and I suggest others seriously consider their attitude to risk as properly recommended by Dunstonh, EdInvestor et al. The problem is that the returns can be spectacular if the investment is managed properly and with good timing (in hindsight!). There I go again! Damn you MSE!

Hi, baldbloke,

You might like the Mr Market idea too. It's a good way of looking at investment. If you value an asset at a price higher than the market accords it you are going to fill your boots, no? Conversely you'd be mad to sell it if Mr Market is on a downer and offering only peanuts for your treasured possession...having said that, regular tracker investments take all of that sort of thing out of your hands, which is why I always say that they are useful for those who lack the time and/or inclination to pick their own shares/funds and monitor them.

It isn't sad to be aware of your stomach for risk! It's very sensible. I have roughly 50% of my portfolio in equities and probably wouldn't be comfortable with more. There's such a thing as too much excitement!

EdInvestor

These arguments are getting awfully repetitive.

I like HYPs, equity income funds and commercial property funds
Cheerful Cat likes HYPs and trackers
Dunstonh likes sector diversified portfolios with lots of funds in them


Take your pick guys

baldbloke_2

EdInvestor wrote:

These arguments are getting awfully repetitive.

I like HYPs, equity income funds and commercial property funds
Cheerful Cat likes HYPs and trackers
Dunstonh likes sector diversified portfolios with lots of funds in them


Take your pick guys

You're right of course. And Baldbloke is constantly worrying himself about a relatively small sum of money and then contradicting himself in his actions and advice.
I mean - what is the point!

Although to be honest it's the 'what should I do with £3000?' threads that irritate me the most. So I have stopped reading them - and now I have more time to devote to engaging in forum chat about Trackers.

Perhaps if we had an Investments board then we could simply post our preferences as 'stickys/ies' (sp?) and leave the board to grow old gracefully.

Kay_Peel

The FT 250 has had a good run over the past five years - that doesn't mean it will continue though. That's the risk you take with a tracker. You also have to look at the returns after the annual management fee - fund managers vary, but I think M&G are the cheapest and Virgin are the most expensive.

But I took this information from the Telegraph Money section.
(Effective from 03/08/2006)

Top investment funds summary
Return on £1K
UK Index Trackers (over 3 years)
HSBC FTSE 250 Index Inc £1,795.65

UK Index Trackers (over 5 years)
HSBC FTSE 250 Index Inc £1,596.37

Top 10 UK trackers over 3 years
£1000 invested, offer/bid, net income reinvested at pay date.
HSBC FTSE 250 Index Inc 1795.65
M&G Index Tracker A Inc 1599.67
Norwich UK Index Tracking Share Class 1 1594.30
F&C FTSE All-Share Tracker 1 Inc 1594.30

Top 10 UK trackers over 5 years
£1000 invested, offer/bid, net income reinvested at pay date .

HSBC FTSE 250 Index Inc 1596.37
M&G Index Tracker A Inc 1287.26
F&C FTSE All-Share Tracker 1 Inc 1281.56
Legal & General UK Index Trust R Inc 1274.38

The chart is only 'hindsight' - you'd need a crystal ball to predict which index will flourish over 12 months, 3 years and 5 years.

Hope that helps

KP

baldbloke_2

Kay_Peel wrote:

The FT 250 has had a good run over the past five years - that doesn't mean it will continue though. That's the risk you take with a tracker. You also have to look at the returns after the annual management fee - fund managers vary, but I think M&G are the cheapest and Virgin are the most expensive.

But I took this information from the Telegraph Money section.
(Effective from 03/08/2006)

Top investment funds summary
Return on £1K
UK Index Trackers (over 3 years)
HSBC FTSE 250 Index Inc £1,795.65

UK Index Trackers (over 5 years)
HSBC FTSE 250 Index Inc £1,596.37

Top 10 UK trackers over 3 years
£1000 invested, offer/bid, net income reinvested at pay date.
HSBC FTSE 250 Index Inc 1795.65
M&G Index Tracker A Inc 1599.67
Norwich UK Index Tracking Share Class 1 1594.30
F&C FTSE All-Share Tracker 1 Inc 1594.30

Top 10 UK trackers over 5 years
£1000 invested, offer/bid, net income reinvested at pay date .

HSBC FTSE 250 Index Inc 1596.37
M&G Index Tracker A Inc 1287.26
F&C FTSE All-Share Tracker 1 Inc 1281.56
Legal & General UK Index Trust R Inc 1274.38

The chart is only 'hindsight' - you'd need a crystal ball to predict which index will flourish over 12 months, 3 years and 5 years.

Hope that helps

KP

That is interesting - especially the performance of the HSBC FTSE250. I included the L&G Ethical Trust in my funds simply because it more closely reflects the FTSE350 than the All-Share or the FTSE100 and is ever-so-slightly 'managed' and therefore might seem to give a little more balance. Mind you the type & size of holdings are pretty much the same across these type of funds as said before - so I imagine there is not a great opportunity for balancing out the rises and falls.
I do not know the fees and charges of the HSBC fund but it would clearly be an interesting addition to one's spread.