Overall the Fund has tracked the FTSE 100 Index very closely throughout the period. The chart on the netPEP statistics page shows the weekly tracking error. Save for a problem when the new Stock Exchange Trading System came into effect (and with it, some share price anomalies), the tracking error has been well within the error range set by Barclays Global Investors, the investment managers.

The Fund is managed on a fully replicated basis which means that it holds the physical stocks in direct proportion to their market capitalisation. The most difficult problem to handle has been the unusually large number of changes to the holdings in the fund. These have been the result of mergers, take-overs and demutualisations and the altogether in the year there have been 12 companies that have dropped out of the Index and 12 new entries. Those dropped out include companies like Tate & Lyle (which simply got crowded out by big new entrants and Grand Metropolitan and Guinness which disappeared as a result of merger and reappeared as Diageo.

These changes cost money in dealing and settlement charges and since the Index makes no allowance for charges of any sort the tracking error can begin to increase. This illustrates one of the real strengths of the appointment of a company like Barclays Global Investors to manage the fund. BGI are the biggest tracking fund managers in the world and are able to command competitively low dealing rates

As far as overall performance is concerned, much of the rise over the last 12 months was attributable to the strong performance put in by most of the Financial stocks – banks and insurance companies. These have been re-rated on account new FTSE 100 Index entrants as part of the process of demutualisation. The new financials added to the list include well-known names such as Norwich Union, Woolwich, Halifax and Alliance & Leicester were added in the second six months of 1997. Of the new entrants to the list of Financials, it was an insurance company, Sun Life & Provincial, which performed the best, putting in a rise of 55% since joining in September.

However, this performance pales into relative insignificance by comparison with the meteoric rise of Bank of Scotland up 145%. But since this only Accounts for 0.85% of the Index, its effect overall has been limited.

At the other end of the list 3i Group, an investment trust which specialises in small companies, has been caught up in the demise of this sector and managed a paltry rise of barely 19% which in any other circumstance would have been regarded as very satisfactory. Next in line for the wooden spoon is Standard Chartered up 20% in the year. Its record has been hit by the Asian economic crisis, a part of the world where the bank’s main interests are to be found.

Other than the top Financials, Pharmaceuticals also performed well as a sector although it was a Utility, Vodafone (up 135%) which notched up the second biggest rise in the Index. The growth of the cellular telephone market has clearly been massive. Other companies to ‘get a ton’ were Lloyds TSB, Hays, Commercial Union, General Accident and Legal & General.

To dispel the idea that everything in the Index has enjoyed supercharged performance in the last 12 months and to prove that there is more to picking shares than using a pin, the share prices of no less than 12 companies actually fell with the worst recorded by once old time favourite high-flier BSkyB which fell by over 26%. This group of shares also included other well known companies such as British Airways down 8% affected by the cabin staff strike and High Street favourite Next down 16%. Altogether the group of laggards accounted for nearly 5% of the Index. This goes to prove that a basket of top companies inherently carries less risk for investors. These losses are minuscule compared with the laggards amongst the rest of Britain’s listed companies where losses are huge. This is especially the case with past high flying technology stocks where losses of 98% have been seen.

It is exceedingly unlikely that the FTSE 100 Index will perform anything like last year. It is possible that there will be star performers like Bank of Scotland but perhaps not in the same magnitude. Finding them is not so easy. The best investment returns are those achieved over the long term in a broad spread of companies. There will inevitably be shorter term disappointments but these should be regarded as opportunities to top up investment holdings rather than to sell and thus lock in gains. There is nothing wrong with locking in gains but anyone taking profits at some stage has to decide when to buy again. A combination of missing the boat and dealing charges usually erodes the earlier gains. That is how the long term investors win the race against the short term traders.