FTSE Tracker vs. Invesco

dunstonh

Approximately 80% of managed funds underperform trackers of indicesin an average year.

So how do you explain both the FTSE100 trackers and FTSE all share trackers being consistently in the bottom half for each and every year in the last 18 years?

The answer is that the sector doesnt reflect the index. The index is too limited and results in lower performance. Lack of diversification on a smaller scale.

Chrismaths

But do 80% of managed funds underperform a tracker - no.
discrete:

Name					01/02	02/03	03/04	04/05	05/06
Unit Trust: L & G UK Index R Acc	-23.0%	20.0%	11.9%	21.2%	16.3%
Sector Average: U & O UK All Companies	-22.9%	22.7%	12.9%	20.7%	17.3%

cumulative:

Name					1 yr	3 yrs	5 yrs
Unit Trust: L & G UK Index R Acc	12.9% 	56.5% 	46.0%
Sector Average: U & O UK All Companies	14.9% 	58.1% 	52.8%

Flynn_2

I think that's the point Dunston. I don't think anyone would argue that some funds will do better than a tracker. But some will do a lot worse. You won't know for sure until the day you sell them because that's the only timescale that matters. A tracker is very unlikely to be the best or the worst.

I think you'll find that after costs are taken into account most managed funds will underperform the associated stockmarket index and that shouldn't be any surprise to anyone.

I don't think L&G allshare tracker does pay any commission. If any IFA is putting clients into trackers that do pay commission knowing that because of the costs they are unlikely to perform better that suggests something very wrong is happening.

dunstonh

L&G all share tracker pays commisson on it's own pension contract at 0.4% p.a. and 0.15% trail on unit trusts I believe with some fund supermarkets.

I still wouldnt use it though by itself. The indices do not give enough coverage and are too limited.

I think you'll find that after costs are taken into acount most managed funds will underperform the associated stockmarket index and that shouldn't be any surprise to anyone.

75th place over 10 years out of nearly 200 funds. If you strip out the passive managed funds which are a waste you can improve the odds so that its better than 50/50.

Generali

dunstonh wrote:

So how do you explain both the FTSE100 trackers and FTSE all share trackers being consistently in the bottom half for each and every year in the last 18 years?

Does that include all fees and commisions? I suspect not.

dunstonh wrote:

The answer is that the sector doesnt reflect the index. The index is too limited and results in lower performance. Lack of diversification on a smaller scale.

Are you trying to suggest that index funds are under diversified? That holding 100 or 250 stocks is not enough? I can see an arguement that too much goes in to Vodaphone, BP and the banking sector in particular.

Flynn_2

dunstonh wrote:

So how do you explain both the FTSE100 trackers and FTSE all share trackers being consistently in the bottom half for each and every year in the last 18 years?

I think you are perhaps still missing the point.

How many time in the past 18 years has the worst performing fund been a managed fund and how many times was it a tracker fund? I assume it's something you would know?

How many years could some investors have sold a managed fund to find they could have done better with a tracker?

dunstonh

Does that include all fees and commisions? I suspect not.

It is on on bid/bid with annual management charges taken into account. So, yes it does take charges into account (and commission comes out of amc).

I think you are perhaps still missing the point.

How many time in the past 18 years was the worst performing fund a managed fund and how many times was it a tracker fund? I assume its something you have looked into?

95% of the funds in the UK all companies sector are managed. The odds are that the bottom fund is going to be managed purely on the numbers available. As it happens, picking a passive managed UK all companies fund would have outperformed both a FTSE 100 tracker and a FTSE all share tracker (after charges) as the passive managed funds tend to mirror sector average.

Are you trying to suggest that index funds are under diversified? That holding 100 or 250 stocks is not enough? I can see an arguement that too much goes in to Vodaphone, BP and the banking sector in particular.

Correct. It is not diversified enough. Its a bit building a portfolio and picking 20 funds from the UK all companies sector. That isnt diversification in the sense it needs to be.

Flynn_2

dunstonh wrote:

L&G all share tracker pays commisson on it's own pension contract at 0.4% p.a. and 0.15% trail on unit trusts I believe with some fund supermarkets.

So 0% upfront and 0.15% compared with the more normal 5% + 0.5% trail for a managed fund? Do any tracker funds pay more commission than L&G and if so, apart from the obvious reason, why?

Flynn_2

dunstonh wrote:

95% of the funds in the UK all companies sector are managed. The odds are that the bottom fund is going to be managed purely on the numbers available.

So are you saying that the very worst performing funds have always been managed funds and not tracker funds? Presumably that is something some investors might want to take into account?

dunstonh

So 0% upfront and 0.15% compared with the more normal 5% + 0.5% trail for a managed fund? Do any tracker funds pay more commission than L&G and if so, apart from the obvious reason, why?

5% upfront isnt a commission that is available. FSA published the half yearly updates in December and show that 1.8% is the current average. 3% is the typical maximum. Dont mix up commission and charges. They are not the same thing and they are not always aligned.

Do any tracker funds pay more commission than L&G and if so, apart from the obvious reason, why?

Schroder Hermes UK Mid 250 Tracker was paying 0.4% last time I looked and I have used that one a few times.

So are you saying that the very worst performing funds have always been managed funds and not tracker funds? Presumably that is something some investors might want to take into account?

If you have 100 marbles in the bag and 95 of them are clear and 5 of them are cloudy, then the odds of picking out a cloudy one are 5%. Statistically, a managed fund has more chance of being bottom purely on the fact that there are far more of them.

Investors may prefer to take into account that:
1 - a bog standard passive managed UK all companies found would have outperformed the UK FTSE100 and UK FTSE all share funds each and every year for the last 18 years. (getting a low cost UK all company sector tracker would be a better bet!)
2 - the UK FTSE100 and UK FTSE all share funds have been in the bottom half of the UK all companies sector each and every year for the last 18 years.

What you are saying is like giving praise to the child that never performs well because there are others that perform worse. What about those that perform better?