Time to change from a tracker to a managed fund?

Stubod

Hi all,

currently have a virgin "tracker" that started out life as "peps".
Returns have been variable, but since we have had them they have only "averaged" about a 4% per annum return.

Should I change them into a "managed" fund?

Any thougths welcome

Stu

Loughton_Monkey

Although I never use them myself, there is nothing wrong with Tracker funds if that's what you want. The reason for poor performance will be for two reasons. 1. The particular index you are 'tracking', and 2. The fact that you have bought it through (possibly) the most expensive source.

If you change to a 'Managed' fund with Virgin, what will they charge?

Should you wish to choose a 'tracker', then I suggest you 'track' an index that promises some sort of growth. Up to you, but personally I would avoid a 'Bankrupt Britain' or European index.

climberup

You might find that other trackers have lower charges than Virgin.

dunstonh

Virgin financial products are pretty poor. Expensive and limited being the major failings.

Whether its a tracker or managed isnt the first question you should ask. How to I want to invest should be, then consider how you are going to do that.

jimjames

I have many tracker funds and originally held some from Virgin when they first came out. I moved from them long ago due to their charges.

Their charges are now much higher than other funds with the same remit. HSBC offer a FTSE100 tracker with annual charges of 0.25% compared to Virgin at 1%. Thats an extra 0.75% growth per year without doing anything. It might not sound much but compounded over a long time it really adds up.

All you need to do is to transfer the funds (note: transfer not withdraw) to a provider such as Hargreaves Lansdown that offer a full range of funds at discounted prices.

Rollinghome

The reason why most tracker funds outperform the majority of managed funds in their sector is due to their low charges.

The Virgin tracker funds don't have low charges. Their All-share tracker has a TER of 1%, four time higher than competitors such as HSBC with a TER of just 0.28%.

So there's no point in having one of the few trackers with high charges. Also be aware that some managers offer different "classes" of the same fund with different charges. For example if you bought the L&G tracker direct you would pay about 0.55% but if you bought through an IFA they would be able to sell you a version that had higher charges and paid them better commisssion.

The argument for managed funds is that if you are able to pick the best performing funds in advance they could outperform tracker funds.

In practice this is much harder than it sounds except with hindsight. I'd suggest you look at some of the funds suggested on this board a few years ago from people who thought they had the gift to pick out the out-performers. Too often those with the loudest opinions are the most niave.

So it's very much up to you, if you think you can pick managed funds that will out-perform trackers then go for it but don't be too surprised if you get it wrong. If you decide to stick with trackers then make sure you choose one with low charges.

jimjames

Good points by Rollinghome. In any one year some funds will beat the return from a tracker fund. The chances are that the funds that beat it this year will not be the ones that outperform next year.

The tracker will therefore give an average market performance but you then don't need to worry about the manager getting the calls wrong with poor sector or stock selection.

It would definitely be advisable to move to a lower charge fund if you want to remain with trackers.

Linton

Stubod wrote: »

Hi all,

currently have a virgin "tracker" that started out life as "peps".
Returns have been variable, but since we have had them they have only "averaged" about a 4% per annum return.

Should I change them into a "managed" fund?

Any thougths welcome

Stu

The key issue is not whether it is a tracker or not, but rather what sector it is invested in. You should decide that first and then see what fund, tracker or managed, meets your needs.

I assume this is a FTSE100 or FTSE all share tracker. If it is, I dont believe you are going to make a vast difference to your returns whether you stay with Virgin, go to a cheaper tracker, or chose a managed fund. My prediction for what it's worth are that the returns will in any case be mediocre.

Depending on the amount of money invested and the length of time you are looking to invest, and the degree to which value fluctuations would upset you it would not be difficult to find a choice of sectors which will perform much better.

dunstonh

For example if you bought the L&G tracker direct you would pay about 0.55% but if you bought through an IFA they would be able to sell you a version that had higher charges and paid them better commisssion.

Apart from the IFAs that use the versions at 0.2x%. Rollinghome makes too many assumptions about IFAs. You should take his comments in that respect with a pinch of salt.

jimjames

Linton wrote: »

I assume this is a FTSE100 or FTSE all share tracker. If it is, I dont believe you are going to make a vast difference to your returns whether you stay with Virgin, go to a cheaper tracker, or chose a managed fund.
.

I'm afraid this just isn't true. A small difference in returns will make a big difference long term so the same market being tracked by 2 funds with vastly different charges could mean a difference of several thousand in returns over a 10 year period.

Rollinghome

dunstonh wrote: »

Apart from the IFAs that use the versions at 0.2x%. Rollinghome makes too many assumptions about IFAs. You should take his comments in that respect with a pinch of salt.

Of course there are genuinely fee based IFAs who recommend low cost trackers that pay no commission. Some recommend portrfolios entirely based on tracker/passive funds.

In order not to mislead, you should point out that IFAs who rely on commission, the majority, won't normally offer any funds with charges as low as 0.2x% even when they are available. The funds they offer will normally have charges of at least 1% or higher in order to pay them their 0.5% annual trail commission.

The L&G tracker fund class charging a higher rate and paying higher commission came to mind because it was you who used the figures from that fund class instead of the normal retail class fund when trying to prove how rubbish tracker funds were. Not surprisingly due to the high fees and commission the fund underperformed and wasn't typical of decent trackers. Had you forgotten?

Obviously for ex-salesmen type IFAs, selective manipulation of figures and misleading claims are just part of the trade.