Sorry if this is a stupid question but are all isa trackers the same? I
mean, can an isa tracker from one firm actually do better or worse than a
tracker from another firm?
Anyone know if there is a tracker than can be split over different indexes,
even different indexes in different countries?
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.
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
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.
In message , Stephen
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
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.
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.
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.