The virtues of trackers

butterfly72

dunstonh wrote: »

Thats the difference in risk and experience. You know it, I know it and all the other experienced investors know it. The novice will often panic and pull out with a loss.

One thing my reading has taught me is that I should be in for long term! This is my plan. I understand that prices go up and down. I'll be drip feeding so I'll benefit when price are low too.

deeplyconfused_2

What an interesting thread!

I am beginning to understand that Managed Funds do not generally outperform the market after charges are taken into consideration.

Best stick to trackers and directly buying shares for my long term investments - and avoid subsidising the lavish lifestyles of a London elite. Sounds good to me!

StevieJ

deeplyconfused wrote: »

What an interesting thread!

I am beginning to understand that Managed Funds do not generally outperform the market after charges are taken into consideration.

Best stick to trackers and directly buying shares for my long term investments - and avoid subsidising the lavish lifestyles of a London elite. Sounds good to me!

A number of funds outperform the index, the trick is to finds them. The Bestinvest link that Paul provides above is a good place to start. If you do not wish to do any research or follow up the index tracker will do an adequate job if you are happy to leave for the mid/longer term, after all mid-table performance is not the best but it is not the worst either.

StevieJ

carnet wrote: »

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.

Just out of interest why can't a tracker outperform the index, Do the relevant benchmarks include dividend payments?

Mortgage_&_debt_free

StevieJ wrote: »

Just out of interest why can't a tracker outperform the index, Do the relevant benchmarks include dividend payments?

Because you pay charges, which will come out of the fund, so there's no way it can beat the index.

cheerfulcat

Because you pay charges, which will come out of the fund, so there's no way it can beat the index.

The charges have a small effect but in any case trackers are designed to track an index, not beat it!

StevieJ

cheerfulcat wrote: »

The charges have a small effect but in any case trackers are designed to track an index, not beat it!

The index does not include dividends ( do the benchmarks?), the FTSE has a dividend yield of say 3% received by the tracker, this is way above the charges so why can't trackers beat the index?

Californication

StevieJ wrote: »

The index does not include dividends ( do the benchmarks?), the FTSE has a dividend yield of say 3% received by the tracker, this is way above the charges so why can't trackers beat the index?

Because the dividends are paid out from the tracker in the same way as if you held the shares directly. If you have a tracker that reinvests the dividends then that would beat the index growth numbers. It's also possible to get figures for the indices showing reinvested dividends; the tracker with reinvested dividends would not out perform this.

NB, this is a slightly weird usage of 'out perform'. Really, comparison is only fair between managed funds and trackers where all dividends are reinvested; and the benchmark should be the index with all dividends reinvested; hence, the tracker would not out perform.

Cheers
C

Chrismaths

The capital only index (which is quoted by the press and everywhere really) doesn't include dividends. The FTSE 100 TR (which stands for Total Return) includes dividends (there are equivalent indices for All Share, 250 etc). A tracker will track the TR index, less fees & costs.

StevieJ

Thanks for that.

My thanks button is not working.