Are all tracker isas the same?

Yes they do perform differently because they could track different indices (FTSE 100 vs All Share). There is still a cash element in the fund for liquidity purposes - the cash element can vary a bit and earn different interest rates by provider. The management charge vary by providers. Also they don't track the index perfectly.

But having said all this you are about 99% right that they don't vary much.

No, they are not the same. One of the papers this weekend compared the worst trackers for charges with the best. A surprising degree of difference. That is ignoring tracking error, which can also be considerable.

There are all sorts of trackers, but in separate funds. You can have more than one fund inside an ISA wrapper.

Which paper had this info? Tracking error is, I am learning, important.

Sorry, I misled you. It was on the Motley Fool web site at

Also, non-trackers don't seem to vary very much either.

I've looked at charts (from FT) for the four investment trusts I own (Allance, Edinburgh, Foreign&Colonial and Witan) and was surprised how similar is the shape of all the charts. I can see the effect of Edinburgh's higher yield on its price but that's the only obvious difference.

Bruce

p.s. the 4 charts are at

That isn't tracking error, it's the effect of charges. Funds which aim to track tightly may in fact have higher charges than ones with bigger tracking errors because they will have to deal more often. As an extreme example, if you buy equal amounts of all 100 FTSE companies and never trade again your tracking error against the FTSE will be pretty big, but your charges will be zero, so on average you should expect to outperform a FTSE tracker.

You're looking at the overall market movement there, for generalist funds it isn't that surprising that they all look similar. If you look more closely I think you will see differences - even at that level, Edinburgh has only doubled whereas F&C is up nearly a factor 4.

Yes it is tracking error. Funds do not necessarily buy every share in the index, but a representative sample. Not many track the 100 index, more the All-share. Dealing is strictly only necessary when index constituents change, except to invest more cash or redeem shares to pay out cash.

If you buy every share in the FTSE and weight the amounts of each share to reflect its weighting in the index, then you should outperform the index because of the dividends which you will receive. The tracking error must be nil, because you have the index exactly. If you buy equal values of each share, then your weighting will be different and you may outperform or underperform the index, depending on how the shares perform. Today the FTSE100 index is up, but BP, it's weightiest component, is down. The odds are that anyone holding equal values of the FTSE100 will have outperformed the index today. On a day when BP goes up and most of the others go down, you would underperform.

Tracking an index is not the be-all and end-all of investment strategy. If your object is to achieve a high and growing income, then it is the last thing that you should be doing.

To some extent, but quite a wodge of the error is due to the method of tracking. Having said that I stand by my long held principle that, net of charges, a tracker either tracks or it doesnt track. That is the ultimate test.

That depends on the method they use to track.

But your purchase wouldnt be a FTSE tracker then, would it? It would just be a Blue Chip UK Equity Fund.

In message , Terry Harper writes

I remember the days in this group when it appeared that I was the only one saying that. Long live the JBSE98!!!!!!!!!!!

OK, so does anyone do an isa that is 50% tracker and 50% managed... or wouldn't anyone like the performance comparison being so direct?

In message , John Smith writes

Yes, there are loads. L&G for one.

You said something to the effect that tracking error always results in underperformance, which can't be right, tracking error is by definition random and will go equally in either direction.

Which is why I said that you would outperform a tracker *on average*, but with random fluctuations around that - unless you think that BP is more likely to go up than any of the other companies, in which case you should only buy BP!

In fact, that is effectively what started this whole thing off in the first place. For a few years (1995 to 1998) the very biggest companies *did* go up a lot more than the rest, so trackers, which had a higher weighting to them than most managed funds, appeared to do better, hence all the stories about how trackers "always" outperform. As usual, people mistook a fairly short-term random fluctuation for an eternal truth.

Better than that. A few years ago the Baring Tribune investment trust changed its structure, to have one pool which is actively managed and one pool which is a low-cost tracker. Shareholders can switch from one share class to the other once a year. As of September 2nd the active shares were 453p and the tracker shares were 435.5, also the former are on an 11% discount and the latter on 6% so the active pool has done somewhat better.

This seems to be going in circles, you are now saying what you disagreed with when I said it, i.e. that the underperformance is due to charges and not tracking error ...

I've forgotten where we started now, but what I believe that I said was that all trackers underperform their chosen index. You claimed that they have a tracking error about the index, which they do not, only about the mean/median of tracker funds. The index effectively is the upper bound of the trackers. Charges should be outweighed by dividends received, but that is not enough to allow them to do better than the index.