Which UK index to track?

TDS_2

Hi people, I'm starting up a pension (30+ yrs to run), and am considering investing about 50% of my regular contributions into UK stocks via an index tracking fund. My other contributions will go into US/Jap/Emerging, plus cash and bonds. My question, is basically which UK index should I track - FTSE 100, 250 or All UK. Is there a clear winner based on the timeframe and the fact that I have investments elsewhere?

Any help/info/comments appreciated.



PS. Costs are low for all these trackers, but I have noticed that 100 is more expensive than 250, which inturn is more expensive than all share - presumably due to less shifting of stock? Either way, the difference isn't big enough to have an impact on the decision.

dunstonh

My question, is basically which UK index should I track - FTSE 100, 250 or All UK. Is there a clear winner based on the timeframe and the fact that I have investments elsewhere?

THere is no clear cut winner. The FTSE 250 focuses on mid caps which did well in recent years but has taken a turn for the worse with the credit crunch. The FTSE100 has spent fourteen years as a bottom half performer because large caps were not in vogue. The FTSE all share will always give you mid table performance due to its nature.

Costs are low for all these trackers, but I have noticed that 100 is more expensive than 250, which inturn is more expensive than all share

Depends on how you are buying the funds and what type of pension you are using.

Browntrout_2

Referring to the index makers -http://www.ftse.com/Indices/UK_Indices/index.jsp

UK market capitalisation percentages;

• FTSE 100 is 81%
• FTSE 250 is 15%
• FTSE Small Cap is 2%
• FTSE All Share is 98-99%

FTSE All-Share is the aggregation of the FTSE 100, FTSE 250 and FTSE Small Cap Indices.

Looking at their own 5 year chart, the All-Share appears to outperform the FTSE100 by about 10% - it's a no brainer for me if All Share is lower cost!

http://www.ftse.com/Indices/UK_Indices/Performance_Analysis.jsp


PS - I'd be tempted to track the FTSE World Index as a benchmark.

cooper2110

Can I ask where the decision to invest 50% into tracking funds came from? I would say with that length of time until retirement a tracker fund can be bettered if your pension scheme allows it. Are there any good performing actively managed funds to pick from that consistently outperform the index, despite having higher charges?

purch

Depends on how you are buying the funds and what type of pension you are using

Yes, very much depends on the type of Pension and the providor.

If you had a SIPP, then you could invest in a huge number of ETF's and track a wide range of markets, and sub-markets. In my opinion if you want to use trackers then a wide exposure would be a sensible idea.

If your pension product and providor only offers middling performing trackers based on just a few index's then I might not bother myself.

If you are determined to use a tracker, and by doing so it indicates you want to invest and forget, then the All-Share would be the way to go, because at any single time over your timeframe the 100, 250, 350 or All Share might be the best performing part of the market, but chopping and changing between Tracker Funds basically defeats the point of using them in the first place.

TDS_2

Thnaks for the feedback!

I keep reading contrary advice on the issue of tracker or managed fund. I appreciate that SOME managed funds outperform the market, but can I trust myself to pick them?! I have managed funds for the emerging markets portion of my pension, but simply because that represents a smaller quantity. Let's say I picked a UK fund with a renowned manager and good track record - is that a better bet for a novice than a tracker (after fees etc.)?

Thanks again.

TDS_2

Also, I plan to invest in these funds via a fund supermarket (ISA rather than SIPP until I get higher rate tax) so the fees are simply the annual charge, no?

The trackers appear to be in the region of 0.50 to 0.75% - is this standard?

earlgrey_3

Some do charge a bit less. Fidelity Moneybuilder UK Index for example charges just 0.1%. Some funds track using different methods that are less expensive to operate.

Because they shouldn't be affected by changes of fund managers etc it's one area where past performance is probably a reasonable guide to the future. You can compare performance and charges here: http://www.trustnet.com/ut/funds/perf.aspx?txtSearch=&btnSubmit=Search...&universe=ut&btnGo=%3CSPAN+class%3DbuttonLeft%3E%3CSPAN+class%3DbuttonRight%3EGo%3C%2FSPAN%3E%3C%2FSPAN%3E&nsUniverse=UT&sort=31&ss=0&txts=&txtss=&columns=&page=0&booIMA=0&reg1=uk&sec=ind&ima=all&unit=all&type=all

Depending on what other investments you have I'd say an all-share is the better option if you just want to buy it and forget it.

Fund-supermarkets are useful when they refund some or all of their commission. As they probably get little or no commission on most trackers there's nothing to refund.

dunstonh

I keep reading contrary advice on the issue of tracker or managed fund.

There is a lot of conflicting info out there. Mainly due to information being used out of context.

A FTSE all share tracker would typically outperform a passive managed UK growth fund over the long term. An active managed fund would usually allow the manager to have some downside protection in place which means it may not go down as much during bad periods. However, that downside protection could hold it back in good periods.

The other thing is that the funds in a sector are not all equal. Some will carry more risk than others. Some may aim for second quartile consistency whilst others may aim for top quartile but may take risks which do not pay off. Others may have a focus that is very different from the FTSE tracker.

Let's say I picked a UK fund with a renowned manager and good track record - is that a better bet for a novice than a tracker (after fees etc.)?

Its only a decision you can make. Go to any of the fund research sites and look at the performance of the FTSE all share trackers and you will see they are mid table (sometimes just above, sometimes just below). Then decide if you want mid table performance or if you feel that playing with the asset allocation is likely to be better for you and your risk profile.