Index tracker choices and ISA wrapper

barak

bowlhead99 wrote: »

.....In the example given, 82 funds beat the cheap tracker over 5 years. How many were beaten by the tracker? And by how much. Likely at least 82, maybe more - remember to count the funds that aren't even in the list any more because they performed so badly.....

I've now looked for UK All Companies funds with either 'tracker' or 'index' in their title and there is one outstanding performer - HSBC FTSE 250 Index fund which appears at positions 32/269, 30/256 and 32/239. That even impresses me!

However, other similarly named 'tracker/index' funds appear over 5 yrs in positions 86, 92, 117, 120, 122, 123, 128, 131, 136, 144, 146, 150, 151, 152, 164, 166, 170, 173, 178, 180, and 192/239. They are obviously tracking different indexes although performances do seem to vary even on the same index.

jimjames

barak wrote: »

They are obviously tracking different indexes although performances do seem to vary even on the same index.

Charges could make up a big part of the difference between them when you have the SWIP tracker at 0.1% and the Virgin one over 1% pa.

It would be interesting to see the comparison between the HSBC 250 tracker and other funds that target the mid 250 shares. From the ones I've seen the tracker beats most of them quite easily.

Blackdog

Tim Hale in his book "Smarter Investing" convinced me to look at Trackers. Anyone who has any interest in this subject should read this first before making up their own minds.
bowlhead99's post 6 above is legend, excellent!

windy71

Thanks guys, from what I've been reading it does seem to indicate that the trackers often outperform the managed funds, and there's an ongoing warning that present success in a managed fund is no indicator of future success. As i'm looking to invest money for the long term a single years performance isn't of too much concern to me. The FTSEs site had a graph comparing the growths in the marlet of the 100,250,350 and all share, and the performance of the 250 looked very good.
So now I'm wondering how I'd pick one. I've not boiught a financial product before. I don't know if I can buy one direct online, or from my bank or a fund supermarket. Seems to be a very confusing system (at least to me) to find out what's good. I read a few recommendations for the Vanguard tracker and HSBC, I think a H&L one sounded good too but the low TER of the Vanguard seemed to me to be the better of the three.
So yes, to recap, if I chose one of these trackers what else do I need to do, I've no ISA at the moment, do I need one to put the tracker in? (the jargon is all a bit new to me too, apologies if this post hasn't made much sense).

Rollinghome

windy71 wrote: »

So yes, to recap, if I chose one of these trackers what else do I need to do, I've no ISA at the moment, do I need one to put the tracker in? (the jargon is all a bit new to me too, apologies if this post hasn't made much sense).

You need to open your ISA with a provider then choose your funds.

If you decide on a tracker, be aware that the fund charges aren't the whole picture. Different methods are used to track the indices, some with smaller margins of error and slightly better returns despite having similar charges.

If you decide to buy Vanguard funds through HL, Vanguard have an exceptionally wide range of funds but be aware of the additional £24 pa per fund that HL charge.

You could also look at the HSBC funds on the Fidelity platform via Cavendishonline. Look too at the L&G UK index which despite a slightly higher AMC of 0.4% gets returns very similar to HSBC but with the bonus of a 0.25% commission rebate if using Cavendish.

As Cavendish rebate all commission on all the funds they offer you might consider that useful if you decided to move to another fund at a future date.

You'll find the Monevator site already recommended useful if you haven't looked already.

JohnRo

The biggest problem with starting investing right now is the RDR and that the whole platform market is somewhat in a state of flux. I personally expect a bit of a chess game between investment platforms as they counter each others new charging structures and compete for a slice of the retail investment market.

Available funds and associated charges, as a result, are all up in the air and subject to change at quite short notice until around this time next year when most moves will have been made, the dust settled and the retail landscape become clearer.

I know waiting to do something that's captured your imagination is extremely frustrating and tedious but it might just pay to hold off until the mid/back end of next year before taking the plunge when a much clearer picture should have emerged.

bowlhead99

Couple of things:
Long term, having an ISA or pension wrapper around your funds is useful and there is only so much new money you can put into one each year. But if you're not a high rate taxpayer and unlikely to use your maximum 5k+ a year shares ISA allowance each year for the next few years, I would not be too worried if you buy the tracker through an ISA or not. Because you can always invest in a basic account outside an ISA and put the proceeds into an ISA or pension in some future year as long as you have space that year.

If you're only investing 1000 and it costs you 50 extra a year to have the fund inside an ISA, don't bother, as it will take several years for the annual tax savings to make up for extra costs. If the price is pretty much the same inside or outside the ISA, then yes you should get the ISA version of the account.

I agree with JohnRo that the fact that some of the brokers and platforms are likely to change their fees next year gives some uncertainty; the cheapest provider in January 2013 might not still be the cheapest in December 2013 and going forward into 2014.

However, I would not use that as an excuse to put off my investment for months and months. Investment returns are unknown because unlike cash savings they are not at a fixed rate. They may well lose money over the next year and you'd have been better off waiting. But the average person will not be lucky enough to be able to 'time the market' in this way and so should generally go ahead when they have the money available, as the long term expectation is that investments give a better return than cash. That's why people say that you should invest in investments once you already saved a decent pot of cash, and the longer your money's working for you, the better.

The fact that I might end up with a relatively more expensive broker/platform if I select the best one now rather than wait 9 months is annoying, but not a big deal. It might end up costing you a percent extra a year, before you do some more research and transfer to a better one later. But in the 9 months the investment returns might be +15% or -15%, and if your presumption is that you can't time the market and it's better to be in the market rather than out, the slightly worse fees are not a big deal. Just go with a resonable provider now and move later if the price changes materially for the worse.

Otherwise the money you had ready for investment in early 2013 might get frittered away on toys and never invested. Or perhaps it would go into cash and be lucky enough to get a better return than the tracker over 9 months, in which case you would have second thoughts about whether investing is for you, and never invest. If you want to invest for your future, and get that long term good return (instead of the cash which will get eroded by inflation), do not be put off by some brokers and platforms squabbling for a while about who might be a bit cheaper or a bit more expensive in 2015.

I won't go into the pros and cons of different funds and different brokers/platforms here, because there are literally hundreds of threads on this site and others which do just that.