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The best tracker funds for your portfolio

FE Trustnet takes a look at which funds most effectively replicate their index across a number of different IMA sectors.

By Joshua Ausden, Reporter, FE Trustnet Follow
Thursday November 17, 2011


The higher costs and greater inconsistency of active funds have pushed an increasing number of investors towards trackers in recent years. However, many of those who hold passive funds have found they fail to replicate the performance of the index they are tracking – particularly in the longer-term.

Here are FE Trustnet’s pick of the most efficient tracker funds on the market:


UK

In the last five years, the Virgin UK Index Tracking fund has replicated the performance of the FTSE All Share index more effectively than any of its peers. Since November 2006, the vehicle has returned 4.35 per cent, compared with 5.58 per cent from the index.

Performance of fund vs index

Name
6-month returns (%)
1-yr returns (%) 
3-yr returns (%) 5-yr returns (%)
Virgin UK Index Tracking
-4.48
2.34
48.69
4.35
FTSE All Share 
-6.43
0.13
49.53
5.58

Source: FE Analytics


The second best performing FTSE All Share tracker over five years is the F&C FTSE All Share Tracker fund, which has returned 3.37 per cent.

Over a three-year period, the margin of error has been even smaller; according to FE Analytics data, the Virgin UK Index Tracking fund has returned 48.69 per cent, underperforming the All Share by less than 1 per cent.

Moreover, the vehicle has actually marginally outperformed the index in the shorter-term, with less volatility.

Performance of fund vs index over 5-yrs


ALT_TAG

Source: FE Analytics

No FTSE 100 tracker has delivered the level of consistency shown by the Virgin UK Index Tracking fund. The Santander Stockmarket 100 Tracker Growth fund has matched the FTSE better than any of its competitors over five- and 10-year periods, though it has underperformed the index by more than 5 per cent over three years.


US

While it is much smaller than the likes of L&G US Index, the £103m SSgA North American Equity Tracker is the stand-out performer in the US market.

According to data recorded at the end of October, the fund had come within 1 per cent of the FTSE All-World Developed North America index over one, three and six months, as well as one and three years.

In the three years to 31 October 2008, the fund has returned 11.17 per cent, compared with 11.71 per cent from its sector.

While the margin of outperformance is slightly larger since its launch in November 2006, the fund is still superior to its competitors. For example, the £1.4bn L&G US Index fund has only managed to return 11.5 per cent in the last decade – around half as much as its FTSE USA benchmark.


Europe

All three of the funds that track the FTSE World Europe ex UK index have failed to get within 5 per cent of their benchmark over both three- and five-year periods, including the £149m HSBC European Index fund.

However, once again the smaller vehicle under the management of SSgA (State Street Global Advisers) comes out on top. At the end of October, the £90m Europe ex UK Equity Tracker had outperformed its FTSE All-World Developed Europe ex UK index by 0.51 per cent since its launch in November 2006.

It has also managed to come within 1 per cent of its benchmark over one and three years.


Japan

HSBC Japan Index is the pick of passive funds in the Japanese market. It has almost perfectly replicated its FTSE Japan index in the last year, and has come within 2.23 per cent over a three-year period.

Performance of fund vs index over 1-yr


ALT_TAG

Source: FE Analytics

However, like so many tracker funds, the impact of costs has resulted in a greater margin of underperformance in the longer-term. According to FE Analytics data, the fund has returned 13.58 per cent over five years – nearly 4 per cent more than FTSE Japan.



 
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Theo Nov 17th, 2011 at 03:16 PM

The primary consideration with index trackers is cost and it is a pity you do not show that in a table, for a number of funds,together with performance (10yr). I was shocked by the 11% under performance of the L&G US Index fund over 10 years, but it is equivalent to 1.1% annually against the fund's TER of 0.82%, to which we must also add dealing costs etc. So it is not so bad. But it does show the tremendous effect of charges even after only 10 years.

In spite of their names the AMC is not the total charge of the fund as most people are led to believe and even the TER is not the total. Unfortunately, every thing and every word is designed to deceive in this rip off industry.

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