Legal and General index tracker cashback

newfoundglory

Legal and General are offering cash back totalling the annual management charge on some of their index-tracking funds and isas, if you put at least £4,000 into one before May and hold it there until 31 Dec 2007.

Given the annual management charge from banks etc can be around 1% or more on UK trackers, is this a good offer? I am looking for a cheap way to start shifting some excess money from savings accounts to the stock market.

Ian_W

I'm in the same boat and have been researching it for a few weeks and though the charges are lower I've decided to steer well clear of trackers.
The L&G Index R is a top 10 performer for trackers over 1, 3 & 5yrs - see
https://www.trustnet.com/ut/funds/perf.asp?sort=31&ss=0&txts=&txtss=&columns=13%2C14%2C17%2C22%2C26%2C27%2C28%2C29%2C30%2C31%2C36%2C37%2C33&page=0&booIMA=1&reg1=all&sec=fof&ima=ukalltrk&unit=all&type=all

But it's still not as good as a reasonable cautious managed fund such as Investec - see
https://www.h-l.co.uk/fund_research/fund_performance.hl?x=48&y=9&sedol=0103653&timescale=4&timespan=60&chart_scale=R&compare_index=none&compare_provider=329&compare_fund=3107481&tr=

And that isn't best but it does give you some downside protection.

If you go for a tracker the HSBC one in the first link looks a better bet to me - but please note I'm no expert.

dunstonh

£4000 should be 4 funds of £1000 each. Not one into a single tracker. Pick the wrong tracker and you are destined to lower returns (as those who picked FTSE100 trackers 5-8 years ago have.

You invest to make money, not save money on charges. Look at your risk profile and invest in areas with good potential that meet your risk profile. If that includes areas with a tracker, then fine. If not, dont compromise because of it.

I would rather pay 1.5% a year and get 15% than 0.4% a year and get 7%.

newfoundglory

Ah, thats an interesting view point. I was led to believe that index trackers have historically out-performed managed funds... and therefore it is pointless paying the high initial and annual fees for a managed fund which probably won't outperform a tracker?

dunstonh

newfoundglory wrote:

Ah, thats an interesting view point. I was led to believe that index trackers have historically out-performed managed funds... and therefore it is pointless paying the high initial and annual fees for a managed fund which probably won't outperform a tracker?

It depends on the timescale used. Some periods will show trackers outperforming the sector average, other times will show them under performing.

For example, if you invested 5 years ago, FTSE100 trackers and FTSE all share trackers have underperformed the sector average (FTSE100 by a lot) but FTSE250 has been top.

A tracker has no downside protection. It will track the index. So, when things are going up in that sector/area, it will perform very well as the downside protection that exists in many managed funds can work against them at that point. When things are going down, the tracker has no downside protection and it goes down with the index. The managed fund wont go down as much. Tracker funds tend to be slightly higher risk than the equivalent managed fund for that reason as well.

The managed fund is also reliant on the manager making the right decisions. Sometimes they will and they will outperform, sometimes they wont and the under perform. The tracker has no-one making any decisions and sometimes they will outperform and sometimes they will under perform.

The managed funds to avoid are the passive managed funds. They have no real management involved but you are paying for it as if it had.

Back on trackers, the reason FTSE100 and FTSE All Share have been performing badly is that those areas have performed badly. Its not to do with tracker vs managed. Its been a Mid cap period and that is reflected in the FTSE250 being the place to be (in the UK). Charges have nothing to do with the performance.

In the last 13 years, the L&G FTSE100 tracker has performed below the sector average each and every year.

The HSBC All share tracker has performed below sector average each and every year in the last 16 years

I picked those two as they had the longest history but you can replace them with any other tracker covering their respective index.

If you invested 5 years ago, out of the 419 funds that were available back then, the L&G fund was ranked 403 and the HSBC fund 237.

In monetary terms, had you put your £4000 in 5 years ago, the L&G fund would now have £4979, HSBC £5640 and sector average £5858. (for reference, a sector allocated portfolio achieving only sector average returns would be at £6508)

EdInvestor

newfoundglory wrote:

Ah, thats an interesting view point. I was led to believe that index trackers have historically out-performed managed funds... and therefore it is pointless paying the high initial and annual fees for a managed fund which probably won't outperform a tracker?

True if you refer to *all* the managed funds out there, because there are thousands of them and most of them are dross.

However if you look at the performance of the top 10 in each sector, it's a different story.The managed funds will outperform the trackers, often massively.It's not rocket science finding these outperforming funds.This site divides them into sectors and rates them:

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

Look for funds in the top 10 over 1,3,5 and 10 years, for consistency.There are probably only about 20 funds worth bothering with.