Personal Equity Plans: A tracker won't prove to be a dog
Sunday 31 January 1999
UK tracker funds follow the FT-SE 100 or All-Share index and aim to match its performance as closely as possible. Your investment will underperform the market slightly because of the fund charges, but you will never be left with a "dog" fund, subject to the whims of a failed fund manager who has chosen shares that don't perform.
The argument in favour of trackers is compelling: figures from investment bank HSBC show just one in three active funds outperforms the FTSE index. Pension funds have used trackers for a long time and they are popular in the US but they have only taken off among UK private investors over the last three years.
"They are a cheap way into the market as long as investors remember that what goes up can go down," says Kim North, an IFA at PTP Technical. If you are interested in buying a tracker fund, look first at the two biggest, as bigger is often better in the long term. A huge fund should be able to track the index more accurately.
The Virgin UK Index Tracking with almost pounds 1.4bn and the Legal & General UK Index with pounds 1.2bn are the biggest. The rest are mostly less than pounds 500m. Both the big UK funds buy the correct proportions of the shares in the All-Share index, a technique known as full replication.
Smaller funds cannot afford to do that and buy selected shares to generate the correct returns.
Research from HSBC shows the UK and the US are the hardest markets for active managers to outperform the index. In 1998 Rob Fisher at HSBC said: "It is ascribed to the fact that the US and the UK are more efficient, developed markets and it is hard to identify stocks that are undervalued because there is so much research. In Japan, for example, there is more scope for buying undervalued shares."
Tracker funds are also cheap. They don't need expensive managers and research staff. So they have little or no initial charge and the annual charge is usually 0.5 per cent or less, although there are a couple, including Virgin, that charge 1 per cent. Overseas trackers charge slightly more, with annual charges averaging 0.75 per cent.
So should you look to put money into a tracker fund now? "Yes you should," says IFA Roddy Kohn, "especially if the FT-SE 100 falls towards 5,000. They are most attractive when the index is low. But of course, it is when prices are low that the public is most nervous about investing."
You should approach the manager directly about buying an index-tracking PEP. Then check with a discount broker (see page 17) to see whether they can deal more cheaply. You won't get a discount on a Virgin PEP.
Contacts: CF netPEP www.netpep.co.uk (deals on the internet only); Legal & General, 0500 116622; Norwich Union, 0345 738393; Scottish Widows, 0345 678910; Virgin, 0345 900900.
best and worst
UK tracker fund performance - bid-to-bid price, % growth over one year
CF netPEP Tracker 17.02
CGU UK Index Tracking 16.95
Lloyds TSB FT-SE 100 16.80
Scot Widows UK Index 16.78
Equitable UK Index Track 16.65
Old Mutual UK All Share 12.28
HSBC UK Index 12.16
Gartmore UK Index 11.63
Morgan Grenfell UK Index 11.53
HSBC FT-SE 250 Index 3.74
(including overseas) 14.06
FT-SE 100 17.47
FT-SE All Share 13.76
Source: Reuters Hindsight
- 1 Morgan Freeman on the riot-focused coverage of the Baltimore protests: 'F**k the media'
- 2 The man who filmed the Freddie Gray video has been arrested at gunpoint
- 3 Top Gear: Jodie Kidd, Philip Glenister and Guy Martin 'in advanced talks' to replace Jeremy Clarkson and co
- 4 Frankie Boyle on Scottish independence: 'In the Interests of Unity, F**k Off'
- 5 Length of pregnancy can vary by up to five weeks, scientists discover
Boston Marathon runner's search for mystery man she kissed ends with letter from his wife
Saudi Arabia's King Salman sacks senior aide for 'slapping' a journalist behind him live on TV
Frankie Boyle on Scottish independence: 'In the Interests of Unity, F**k Off'
Italian police 'reveal' what Jesus looked like as a young boy
Florida couple forced to register as sex offenders for having sex on public beach
In defence of liberal democracy
The Rothschild Libel: Why has it taken 200 years for an anti-Semitic slur that emerged from the Battle of Waterloo to be dismissed?
General Election 2015: UK will be 'run for the wealthy and powerful' if Tories retain power, Labour warns
General election live: SNP suspends two members for disrupting Labour rally
Schools forced to act as 'miniature welfare states' with teachers buying underwear and even haircuts for poor pupils
Andy McSmith's Sketch: Feisty audience is the real star of an enlightening show
iJobs Money & Business
£20000 - £25000 per annum + Uncapped commission: SThree: Can you speak German,...
£25000 - £30000 per annum + benefits: Ashdown Group: An exciting opportunity f...
£215 per day: Ashdown Group: Junior Project Manager (website, web application ...
£40-50K: Guru Careers: We are seeking an experienced Software Engineer / Softw...