BBC say it's "likely" the FTSE 100 will break 7000 in 2015 but warn on trackers

masonic

jimjames wrote: »

But it still includes dividends.

Exactly. So I suspect "James Maltin, the investment director at Rathbone Investment Management", needs to research the difference between income and accumulation classes of funds, as well as the meaning of total return index. Either that or provide an example to support his rather bizarre statement.

Mistermeaner

!!!!! article

tigerspill

InvestInPoker wrote: »

I totally agree with this, the only things I could think of were the products high street banks try and sell to the uninformed?

I cant think of any proper index funds that don't include dividends either (but then again I am just a newbie)

Terrible article by the BBC.

So generally a FTSE Index tracker fund will rise at a faster rate than the index itself because of dividend re-investment (assuming an Accumulation fund)?

InvestInPoker

tigerspill wrote: »

So generally a FTSE Index tracker fund will rise at a faster rate than the index itself because of dividend re-investment (assuming an Accumulation fund)?

I don't know if "rise at a faster rate" is the right way to phrase it but yes roughly if you had invested £10,000 when the FTSE 100 was at 6,930 then fast forwaded to today (when the base index is lower) you would have roughly £15,000 in the fund - because of dividend reinvestment over the years assuming you had chosen to do that.

AlanP_2

tigerspill wrote: »

So generally a FTSE Index tracker fund will rise at a faster rate than the index itself because of dividend re-investment (assuming an Accumulation fund)?

I thought the dividend reinvestment came in the form of additional share purchases as opposed to an increase in the share value - but I am another newbie so could be totally wrong with that.

Logically I can't see the dividends inflating the price otherwise the performance graphs would show Trackers a long way above their respective index over a 12 month plus time scale surely?

payless

Normal tracker funds would account for dividends z( paid out or accumulate) . Structured products are commonly linked to the actual index though.

masonic

AlanP wrote: »

I thought the dividend reinvestment came in the form of additional share purchases as opposed to an increase in the share value - but I am another newbie so could be totally wrong with that.

For income classes of funds, the dividends are used to purchase additional units; for accumulation classes, they increase the unit price so the holder ends up with no additional units.

Logically I can't see the dividends inflating the price otherwise the performance graphs would show Trackers a long way above their respective index over a 12 month plus time scale surely?

It depends what you plot. You can easily plot the index (without taking into account the dividends) against an accumulation units tracker and see the tracker outperform the index. Most charting tools will include income, comparing like with like, but it is worth checking if you are unsure. In the unlikely event that a fund did only track the capital value of an index, then that is likely what they would use for their own comparison, but it should be quite easily spotted.

tigerspill

masonic wrote: »

It depends what you plot. You can easily plot the index (without taking into account the dividends) against an accumulation units tracker and see the tracker outperform the index. Most charting tools will include income, comparing like with like, but it is worth checking if you are unsure. In the unlikely event that a fund did only track the capital value of an index, then that is likely what they would use for their own comparison, but it should be quite easily spotted.

Thanks for this - but another dumb question. What should I look for when checking graphs or in the fund documentation?

masonic

tigerspill wrote: »

Thanks for this - but another dumb question. What should I look for when checking graphs or in the fund documentation?

For performance data, I'd ignore the documentation and go straight to a site like Trustnet and locate the fund you are interested in. This will provide you with performance charts that you can customise to look at time periods well beyond what the fund managers tend to publish. By default, the comparisons will be with dividends reinvested and you can plot several rival trackers against their respective index to see how well they have tracked it.

Rollinghome

masonic wrote: »

By default, the comparisons will be with dividends reinvested and you can plot several rival trackers against their respective index to see how well they have tracked it.

But bear in mind that the management charges, even for the same share classes, have fallen for many trackers in recent years which can make meaningful comparisons difficult or impossible.

For example HSBC trackers were very expensive until 2009 when they halved the AMC of their all share FTSE tracker and cut the AMC on their FTSE 100 tracker by 75%. Similar cuts were made to the rest of their trackers. See here... So performance before that date isn't very indicative of what you'd expect now.

L&G, Fidelity and others have also been slashing charges recently. To make comparisons still trickier, many of the post RDR "clean" share classes weren't available until recently so often there's no way to compare like with like.