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The reason investors are switching to trackerfunds is because they offer consistently better performance. The evidence on both sides of the Atlantic is very clear. In a recent update of his book, A Random Walk Down Wall Street, (available at Tracker Magazine's online bookstore) Burton G. Malkeil calculated that since he first recommended tracker funds 30 years ago, a Wall Street tracker mutual fund had turned an initial investment of $10,000 into $311,000 compared with $172,000 for the typical active general equity fund. In the UK, the picture is the same. Just one in three unit trusts managed to outperform their benchmark index in the year to the end of December 1999. This poor record is actually an improvement on the year to September 1999 when just 1 in 4 beat their benchmark index. (Source HSBC Asset Management and Sunday Telegraph 30th January 2000) An authoritative report has also been published recently, The WM Company Report, which contains a detailed comparison between actively managed equity unit trusts and passively managed or 'tracker' trusts. And the explanation? The heart of the problem with actively managed funds is their high charges. The Financial Service Authority (FSA) - the City's Watchdog - published a research paper entitled "The Price of Retail Investing in the UK". This found that between 1987 and 1999, on average a consumer would have needed to pay £1.50 to ensure that £1 was invested in the market.
"For most of your stock portfolio, tracker funds, which simply invest in every stock in an index such as the FTSE 100 or the S&P 500, are your best bet. Trackers don’t always win; but their low expenses – the best cost just 0.5% or less of assets per year – give them a huge long-term edge over active stock pickers who charge 1.5% or more. Combine those fees with the hidden expenses, such as the trading costs incurred by some hyperactive managers, and the real drag on a managed fund can get close to 3%. That, if you believe the London Business School group’s numbers, could wipe out your long-term gain from stocks over cash or bonds. And if one thing’s for sure, this is no time to start throwing money away." If this evidence has convinced you, why not check out our current special promotions? Also
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