The virtues of trackers

Flynn_2

That doesn't appear to be true of any that I've looked at and I don't have the financial self interest of a commission based IFA, paid by the fund managers, such as yourself.

masonic

Hmmm, there seems to be an underlying assertion that if you buy a tracker, you can expect it to return what the index returns (before charges). Is that really the case? For example, if I am reading correctly, this tracker, seems to be returning 1-2% less than the index that it tracks per year. I assume that's before charges. Have I just found a very bad tracker, or is that sort of thing normal?

dunstonh

Flynn wrote: »

That doesn't appear to be true of any that I've looked at and I don't have the financial self interest of a commission based IFA, paid by the fund managers, such as yourself.

The financial self interest I have is that I get paid more when the portfolio goes up and less when it goes down. The more it goes up, the more I get paid. So, its in my interest, as well as my clients for the portfolio to go up as much as possible. If a tracker helps that, so be it. If it doesnt, I wont use it.

Of course, there are some advisers just as you describe but don't include the invesment specialist IFAs in with the GP IFAs or mortgage IFAs.

Also, I have portfolios performing less than FTSE all share trackers in growth periods. They are called cautious or low risk portfolios. They are designed to be that way. It doesnt make them bad. it makes them appropriate to the risk profile of the individual. More people are under the risk profile of a FTSE tracker than equal or above it. If you assume risk = reward, then a FTSE tracker should outperform a cautious portfolio over the long term.

Flynn_2

Yes, unit trust salesmen get their commission on unit trusts whether the client wins or loses. It's not difficult to understand why the majority who are totally dependent on commission paid to them by the fund managers like to talk down UT tracker funds or investment trusts that pay them little or no commission.

If IFAs could be relied upon to independently recommend the best investments regardless of the level of commission they received then clearly the UT companies wouldn't need to wave those large wads of money in front of their eyes. Caveat emptor.

jem16

Flynn wrote: »

Yes, unit trust salesmen get their commission on unit trusts whether the client wins or loses. It's not difficult to understand why the majority who are totally dependent on commission paid to them by the fund managers like to talk down UT tracker funds or investment trusts that pay them little or no commission.

The problem here seems to be that you are allowing commission to influence the investment as opposed to deciding what you want to invest in.

dunstonh

Yes, unit trust salesmen get their commission on unit trusts whether the client wins or loses. It's not difficult to understand why the majority who are totally dependent on commission paid to them by the fund managers like to talk down UT tracker funds or investment trusts that pay them little or no commission.

As I said, the commisison is the same regardless of tracker or managed a lot of the time.

You seem more interested in turning this into an anti IFA thread than one on managed vs trackers.

carnet

All these tracker versus managed fund discussions always centre on the premises that trackers are cheaper and most managed funds don't outperform their benchmarked indices.

Whilst the first may be correct, it is also correct to say that trackers, no matter how cheap, can never outperform their relevant benchmarks.

Whilst the second may also be correct, it is again also correct to say that some managed funds (more correct to say some fund managers) can and do consistently outperform both their benchmarks and their sector peers, often by a considerable margin.

Most knowledgeable fund investors know that, through a little research, finding such funds (managers) is not so very difficult and that it is simply illogical to invest in a tracker, with no hope of outperforming, to save perhaps 1% per annum when, through judicious fund picking, there is the very real potential for substantial outperformance.

cheerfulcat

Hi, carnet,

To be fair I don't think that anyone is denying that some managers can and do consistently outperform - any private investor who thinks that his or her returns are better than those of most funds because they are better investors than the fund managers is totally deluded IMHO. The fund managers are constrained by their mandates, and the charges on top don't help. As the fund manager in the post I linked to writes, at portfolio level they can often outperform the benchmark ( though not, it seems, by much ).

Trackers are good for passive investors. Active investors, whether in shares or collective investments, will almost certainly get a better return if they do their homework.

I would be interested to know, if any of the IFAs/money managers here are prepared to reveal the figures, what proportion of the thousands of managed funds available they actually use in their professional capacity.

dunstonh

I would be interested to know, if any of the IFAs/money managers here are prepared to reveal the figures, what proportion of the thousands of managed funds available they actually use in their professional capacity.

It is easy to strip out a vast quantity of managed funds just by removing passive managed funds (no point being in one of those), balanced, cautious, defensive and distribution funds (in my view jack of trades, master of none).

You are then left with a smaller range of active managed funds which do have the potential to outperform the trackers.

Trackers are good for passive investors. Active investors, whether in shares or collective investments, will almost certainly get a better return if they do their homework.

That is in interesting point. When I am investing for a client that doesnt want ongoing servicing, I will more often than not use trackers wherever possible.

Passive investing is never a good move and it does need active management, whether you do it yourself, get an IFA to do it or use a fund of funds.

carnet

cheerfulcat wrote: »

I would be interested to know, if any of the IFAs/money managers here are prepared to reveal the figures, what proportion of the thousands of managed funds available they actually use in their professional capacity.

Don't know about the IFAs, but I only track about 2.5% of the available fund managers (although a few of these may manage more than one fund which might be of interest)

In other words, IMHO, 97.5% of fund managers are not worth following.