Tracker ISAs - any advice appreciated!

HappyHelen_2

I would like to start a regular monthly investment in a tracker ISA but can't seem to find any advice/ comparison of interest rates etc anywhere! Does anyone have any opinions on tracker ISAs as an investment, or ideas about which companies offer the best schemes?

dunstonh

you dont get interest on a tracker ISA. In theory, the tracker ISAs should be identical in their performance. Therefore charges are the most appropriate thing to look at there. You will not find any advice online. Anyone giving advice has to be regulated by the FSA and is legally responsible for that advice. Therefore generic comments are what you will usually come across.

UK Trackers have not been that desirable in recent years. Mostly due to the changes in the UK economy and the impact of Gordon Browns new stealth taxes on stockmarket investments. UK Equity & Income Funds have been trouncing all over them.

Some higher risk overseas trackers are less affected by this and still represent value for money.

HappyHelen_2

Thank you.... it's interesting to hear another view since the Motley Fool website is incredibly pro trackers. I shall have to ponder a little longer!

dunstonh

Motley fool is very very pro trackers and long term they have outperformed most equivalent UK managed funds. However, they do include managed funds which are not in the same risk profile (ie corporate bonds, property, japan etc). They really ought to compare like for like. A corporate bond fund is never going to have the potential of an equity fund but then it doesnt have the volatility either but can be totally tax free, unlike a tracker. Its a case of the right thing for the right person.

When a tracker goes up, it generally outperforms the managed funds. When it goes down, it generally goes down by more than the managed funds as they tend to have some downside protection which is not present in the tracker.

The changes to the stockmarkets due to changing economies means that we are not seeing as much boom as we used to and this has reduced the performance of the trackers down to below that of most equivalent managed funds.

So, in the last 5 years trackers have been worse. In the last 10 years they have been better than equivalent managed funds. Although a quick check actually shows that the UK all companies sector (the average of all funds in that sector) is marginally outperforming the L&G UK tracker over 10 years now). So that means if you were in an average UK all companies fund, you would have outperformed the L&G tracker. In that same period, the sector average for UK equity & income (which focuses more on the income side of equities) has significantly outperformed both of the sectors. Most of the difference is in the last 5 years.

Personally, I hedge my bets and have some on tracker and some on managed and also spread the portfolio over a range of areas. At the end of the day, its more about asset allocation than trying to be in the best fund or have the lowest charges. For example, the UK tends to be the best performing sector once every 5-7 years. So if you have your funds all in the UK, you will get top performance two years in every 10-15. Not very good!

Have a % in different sectors and have the weighting between those percentages so it matches you personal view on investment risk and you will more than likely find that it ourperforms a UK tracker over the long term (assuming we dont get the UK being best 8 years out of 10!!! - oh for a crystal ball )