FTSE tracker funds – anything to compare between them?

hodd

I plan to buy a property (or have a sizeable deposit) within three years and have £50K so far. I can save £20K to £25K a year in the meantime.

a) £25K is in an Investec High 5 account, getting 2.91%.
b) £7K is in a 2006 ISA fund, even though I am not a UK resident right now.
c) £7K (was £6K) is in those BP shares I riskily bought on a whim.
d) £10K is in a UK current bank account.
e) The rest is in my overseas current account.

I’m reasonably happy to leave (a), (b) and (c) alone. However, I’d like a low- to medium-risk way to get some interest on (d) to at least keep up with inflation.

I don’t mind “blowing” smaller amounts on shares from time to time, but I’m looking at putting £8K or so in a boring FTSE 100/250 tracker fund. Most have a TER of around 0.40%, which is a big plus for me.

I can look at Morning Star ratings and fees, but is there any difference when comparing two or more tracker funds? One FTSE 100 tracker’s information seems the same as another company’s fund.

joepubli

There are two types. Ones those who actually replicate the inde by buying the actual stocks and others that try and follow it by investing in futures etc. They are both subject to tracking error - the former are supposed to be more stable.

I'd compare the fees and go for the ones that replicate. You can compare the tracking error.

Re getting a return you might also look at SLXX which is a ifund that invests in bonds. You can get about 5% return and might be better than leaving it in a bank. Costs are low and there is no stamp duty. Although there is some risk to capital.

dunstonh

Most have a TER of around 0.40%, which is a big plus for me.

Thats quite high nowadays for a tracker. Typically you should be expecting around 0.2x% as the TER.

but is there any difference when comparing two or more tracker funds?

charges, tracking errors and the obvious index they track as well as the risk if you start comparing different index trackers. e.g. A FTSE250 tracker is higher risk than a the medium/high risk FTSE100 tracker.

I’d like a low- to medium-risk way to get some interest

First they do not pay interest and a ftse tracker is not low/medium. It is medium/high to high (depending on which FTSE index you track). 3 years would also increase that risk as its very short in timescale and its quite possible, indeed probable, we may see a few corrections in there or even a major drop.

hodd

dunstonh wrote: »

First they do not pay interest and a ftse tracker is not low/medium.

Thanks, dunstonh.

By “interest”, I meant gains, but you’re right to correct.

Medium to high risk is not what I’m after. I just wish my Investec account was doing better or I would put more in there.

dunstonh

To put that risk scale in context, if you took a scale of 1-10 with cash being 1 and 10 being the highest risk retail UT/OEIC available then a FTSE100 tracker would be 7. Twice in the last decade a FTSE tracker would have lost 43%. Drops of that scale are more unusual. You would have to go back a long way to find another that big but even if you get a more typical 25-30% drop, you wont have time to recover in 3 years. Investing is more 5-10 years plus.

jimjames

dunstonh wrote: »

To put that risk scale in context, if you took a scale of 1-10 with cash being 1 and 10 being the highest risk retail UT/OEIC available then a FTSE100 tracker would be 7. Twice in the last decade a FTSE tracker would have lost 43%. Drops of that scale are more unusual. You would have to go back a long way to find another that big but even if you get a more typical 25-30% drop, you wont have time to recover in 3 years. Investing is more 5-10 years plus.

I find that amazing that a FTSE 100 tracker is classified as a 7 on a risk scale of 1-10. Is a fund investing in the top 100 companies in the UK really high risk?

That means that in a just 3 points (8,9,10) you have things such as overseas trackers, overseas funds, emerging market funds, tech/single sector funds,investment trusts, FTSE100 shares, AIM shares, warrants, CFD, spread betting.

I wouldn't think those were anywhere close to each other on a risk scale or is it a log scale?

[edit - just re-read your post and saw it relates only to UT which seems a strange way to measure risk but I still think 7 seems to overstate the risk)

Aegis

jimjames wrote: »

I find that amazing that a FTSE 100 tracker is classified as a 7 on a risk scale of 1-10. Is a fund investing in the top 100 companies in the UK really high risk?

That means that in a just 3 points (8,9,10) you have things such as overseas trackers, overseas funds, emerging market funds, tech/single sector funds,investment trusts, FTSE100 shares, AIM shares, warrants, CFD, spread betting.

I wouldn't think those were anywhere close to each other on a risk scale or is it a log scale?

[edit - just re-read your post and saw it relates only to UT which seems a strange way to measure risk but I still think 7 seems to overstate the risk)

I have a similar risk scale, and what you will typically see is much larger gaps between the relative volatility of funds at the higher end of the risk scale to those on the lower end. As such, your description of it being a log scale is probably not far off, though I wouldn't say that it would be a l!!!0 scale (i.e. that each step represented 10 times the volatility) - maybe closer to a log2 scale.

Hopefully that actually made sense, it's been a while since I did logarithms.

sabretoothtigger

dunstonh wrote: »

Thats quite high nowadays for a tracker. Typically you should be expecting around 0.2x% as the TER.

or 1% if you go with Virgin who are very popular



FTSE cover indexes of markets all over the world. It doesnt have to be london listed stocks, if you love uk regulation then I guess you stay here

Otherwise I think the pacific is better long term


A lasting drop in the ft100 is only likely if you think the uk pound is undervalued I think

Is a fund investing in the top 100 companies in the UK really high risk?

Its weighted to about only half a dozen companies. http://finance.yahoo.com/q/hl?s=EWU+Holdings


I think the ft250 is less risk myself, its more evenly distributed anyhow. When any fish gets too big, it gets sold which for a tracker is unusual because that represents active profit taking at the highest price not the lowest as ft100 will do

Anyone will tell you buy low sell high not the other way round

dunstonh

That means that in a just 3 points (8,9,10) you have things such as overseas trackers, overseas funds, emerging market funds, tech/single sector funds,investment trusts, FTSE100 shares, AIM shares, warrants, CFD, spread betting.

No. The 1-10 scale I mentioned was only using retail UT/OEIC funds. Not specialist investments.

[edit - just re-read your post and saw it relates only to UT which seems a strange way to measure risk but I still think 7 seems to overstate the risk)

The one we use goes higher for specialist but for non-specialist 1-10 is fine. When you look at the various research companies and compare the outcome is fairly consistent in the placement of the risk profiles of funds. When you look at it, a FTSE tracker has lost over 40% twice in the last ten years. Your typical medium risk funds lost around 25% at those same times. So, if you look at just that alone (which isnt enough by itself but a good guide), then if medium risk lost 25% then something that lost over 40% in that period has to be higher up the scale.

I tend to find that gaps between risk tolerance are greater as you move up the scale. i.e. if someone is willing to accept 70% risk loss than they are not really going to be worried about a 75% loss. Whereas someone that only can take 10% loss would likely be worrying at 15%. So, you do tend to find the lower end has greater fine tuning than the upper end.

Rollinghome

Netball could rate 8 on a risk scale of activities if you include sleeping but exclude base-jumping.

Rather than getting embroiled in fairly pointless and arbitary "scales" that people love to quote for some reason, but which are meaningless unless specifying and comparing two investments, then just go to GoogleFinance or H-L or whatever and look at the chart for whichever index interests you. You can see exactly what has happened historically without the need for arbitary "scales".

Then lay over the graphs of the alternatives for comparison. The graphs on the H-L site are useful for comparing funds against each other and the indices they track. For most people the HSBC trackers will be worth considering (or possibly L&G with a higher TER if the cashback being offered by Quidco tips the balance). Morningstar evaluates the risk/return of funds relative to the sector which for an HSBC FTSE tracker and all similar trackers would be Average Risk/Above Average Return if that helps.