FTSE tracker that pays dividends?

MrMalkin

The fund would have to buy the 'new Google' when they became part of the FTSE. Membership of the FTSE100 isn't automatic, the consituency is reviewed every 3 months or and there are rules about which companies are allowed to join e.g. certain % of equity available on the open market.

When a new company joined the index, funds would have to sell the company dropping out of the FTSE and buy the new entrant's shares. If the new company was very large upon entry, the funds would also have to sell a small amount of each of the other companies in the FTSE to free up enough funds to maintain the new company's market cap in relation to the other constituents.

This is one of the reasons why FTSE All-Share funds might be a better bet than a FTSE100 fund - they are much less likely to have the kind of costs that index changes cause when constituencies change, because presumably a new entry into the 100 would previously have been in the 250 or Small Cap - Glencore being an obvious exception, they went straight into the 100.

jimjames

doughnutmachine wrote: »

i just dont see how the trackers could increase the value of their customers' investments, after all they wouldn't have had shares in the small company before it became an overnight success

The trackers would have to buy the new company when it joins the FTSE100, when it grows to become company 100 rather than company 101.

Once in the index if it then grows to be the biggest company, and the other companies do not fall in value, then the index will rise as a result. If it grows too big then it can and does cause a problem for trackers and other funds as most are limited to holding 15% of any one share in the fund. So if Vodafone or any other company was 30% of the index then the tracker would be unable to hold the same weighting as the index in theory. This did happen back in 1999/2000 when Voda was very close to the limits allowed.

s20544

Thanks for your feedback on tracker dividends and BTL.

I accept the point that moving from straight savings account to a ftse-tracker are diffierent ends of the risk spectrum. This was why I mentioned structured savings products as I thought that perhaps these were more 'mid ground'. However, I know that they have come in for a lot of crticicism with regards to risk vs reward and potential mis-selling.

I can accept losing 30% of my capital over a 2-3 yr period for this proportion of my funds . . . as long as the likelihood is not too high and the potential return is significantly better than a savings account.

Does the investment product I need (low-medium risk over a 2/3 yr investment period) actually exist?

The only reason, I am considering a BTL (for a minority proportion of my funds) is that I believe (perhaps incorrectly) that if you carefully choose the right property in the right location, the value of the property is partly protected. This has worked for me over the last 17 years but perhaps this was just luck.

My (perhaps flawed) hypothesis is that ...In the correct location, eg close to a commuting rail connection in a desirable neighbourhood, a properties value will remain in a band in which the rent represents approx 3 - 9% of this value due to supply/demmand of both tennants and investors. Such a property, marketed at slightly below market value should be quick to sell, making it a liquid investment. .... but as I said perhaps my hypothesis is flawed. I recognise that selling a property after only 2/3yrs of ownerhsip (if situation necessitates) does mean that capital/income could be eaten up by fees. Selling after such a short period of ownership would be a worse case scenario.

Views on alternaive investments to BTL for 2/3yr period with low risk appreciated. I'm looking for 5%+ retrurn per annum. Realistic?

opinions4u

Does the investment product I need (low-medium risk over a 2/3 yr investment period) actually exist?

No. It doesn't.

if you carefully choose the right property in the right location, the value of the property is partly protected. This has worked for me over the last 17 years but perhaps this was just luck.

Up until 2008 your gains were driven by the ever increasing availability of mortgage funds. Those funds have gone from the market and won't return in a hurry.

The right location can become the wrong location in time.

BTL is an all eggs in one basket approach to investing. And your cash isn't exactly liquid when tied up in property.

bigadaj

If you are looking at a btl for a small percentage of your funds then that would suggest a large sum is available.

Investing in a tracker fund would be a good start to a long term investment strategy however it sounds like you are after a home for house deposit over a few years. Only sensible home for this is cAsh savings deposit, potentially tying up for a sensible period if the interest rate differential is worthwhile.

dunstonh

Does the investment product I need (low-medium risk over a 2/3 yr investment period) actually exist?

No. Short timescale increases the risk. What you were looking at was above your risk profile to begin with and that is with normal 5-10 year short period. Let alone 2-3 years.

The only reason, I am considering a BTL (for a minority proportion of my funds) is that I believe (perhaps incorrectly) that if you carefully choose the right property in the right location, the value of the property is partly protected. This has worked for me over the last 17 years but perhaps this was just luck.

In the period of the credit boom it required no skills or knowledge to make money on property. Prices were inflated because of easy credit. We are not in that position now. Also, the costs in buying and selling and fitting it into a 2/3 year timescale and needing the money quickly (potentially) if the right "residential" house comes along rules out property.

sabretoothtigger

There is the option with risk that you reduce size. I dont see that the FTSE tracker idea has to be excluded altogether.

Generally dont put everything in one lump, some cash some in an investment seems reasonable to me

property that could (hopefully) be sold quickly

This is even more extreme then the tracker. If you personally are not requiring and using this house, it becomes speculative and much more risky to do. Also houses are less liquid so there is negative on both sides

Shares are at least very liquid, a tracker is close to cash in this way. Houses can take forever to sell at worst


Trackers buy and sell every day, if a company falls in price its partly the trackers offloading. There is quite a few of them so the market can easily resemble a flock of sheep

LongtermDIYer

You could always buy into an ETF (also exempt from the 0.5% stamp duty)

I have shares in ISF (iShares FTSE tracker) which pays dividends quarterly.

gadgetmind

sabretoothtigger wrote: »

Trackers buy and sell every day, if a company falls in price its partly the trackers offloading. There is quite a few of them so the market can easily resemble a flock of sheep

Are you sure about that? The advantage of cap weighting (aka tracking the index) is that a tracker buys exactly once (as units are created or a company enters the index) and sells exactly once trading is very limited. As the index is dominated by the largest members, the costs of entry/exit trading are very small, which is why index tracking is so cheap and effective.

Other weightings (and per company/sector caps) can increase the amount of trading but such trackers/ETFs are far less common.

N1AK

doughnutmachine wrote: »

but how can a tracker match the ftse 100 if one company of the ftse 100 takes over another 100 company? it would mean the ftse100 becomes ftse99 after the takeover, so they let another company in to make it the ftse100 again. i just don't see how a tracker can match the increased value of the ftse100 by letting another company in?

They buy based on % value per company. Thus if the largest firm in the FTSE 100 is big enough to account for 10% of the value of FTSE 100 firms you would own 10% of it. When two firms merge and another enters you'd see the % value decrease for all the other firms thus you'd sell a small amount of 100 firms (counting both the two merging firms) and buy a bit of the new company.