Passive investment strategies from Fidelity, Legal & General and Vanguard are among those recommended by financial advisers who believe investors of any age can hold them in their portfolios.
Five passive investment strategies are included in the three FE Adviser Fund Index (AFI) portfolios – Aggressive, Balanced and Cautious – which are compiled by a panel of leading financial advice firms.
The FE AFI Aggressive portfolio contains funds that the panel believe are suitable for an investor in their late-20s. The FE AFI Balanced portfolio, meanwhile, consists of funds advisers believe are suitable for an investor in their mid-40s. Finally, the FE AFI Cautious portfolio is made up funds for investors in their late-50s.
Each portfolio assumes the investor is saving for a pension to be taken at age 65.
Below FE Trustnet highlights the five passive strategies that advisers from the panel believe investors of any age can hold.
Fidelity Index UK
First on our list is the £2.3bn Fidelity Index UK fund, which aims to closely match the performance of the FTSE All Share index.
Launched in 1996, the open-ended fund holds the larger companies from the index alongside a selection of smaller companies to align it as closely as possible with the index. It may also invest in stock index futures and derivatives to reduce costs or generate income.
Analysts at FE Invest said this process of replicating the index is known as sampling. They noted that the fund also does not participate in stock lending, reducing counterparty risk.
The fund is overseen by Boston-based index investing specialist firm Geode Capital Management, a former sub-division of Fidelity that was spun-off in 2003.
Performance of fund vs benchmark over 10yrs
Source: FE Analytics
During the past 10 years, the Fidelity Index UK fund has delivered a 167.71 per cent total return compared with a 171.03 per cent gain for the FTSE All Share index.
During this period the fund has an r-squared figure – which measures how closely a fund is correlated with a benchmark – of 0.95, with 1 representing a perfect match.
The fund also has a historic yield of 2.82 per cent, lower than the FTSE All Share’s yield of 3.8 per cent.
Of the five passive strategies Fidelity Index UK has the lowest ongoing charges figure (OCF) of 0.06 per cent.
Fidelity Index World
The second passive strategy chosen by advisers as a suitable fund for investors of all ages is the £915m Fidelity Index World fund, launched in 2012.
The open-ended fund – also managed by Geode Capital Management – aims to closely match the performance of the MSCI World index.
The fund has 1,625 holdings and like its sister fund also uses the sampling process to replicate results of the benchmark.
Along with Fidelity Index UK, this fund is part of the asset manager’s seven strong passive range covering major markets.
Over five years the Fidelity fund has an r-square figure of 0.91, when measured against the MSCI World benchmark.
During that time, Fidelity Index World has delivered a 78.25 per cent total return against the benchmark’s 76.45 per cent.
It has a OCF of 0.12 per cent.
L&G Japan Index Trust
Our first non-Fidelity passive strategy is the L&G Japan Index Trust, which aims to track the FTSE Japan index – an index composed of large- and mid-cap companies listed on the Tokyo Stock Exchange.
Legal & General Investment Management (LGIM) has a long track record as a provider of passive strategies in the UK.
Unlike the Fidelity funds, the £1.4bn passive strategy will invest almost entirely in company shares, closely matching those in the index. However, it may also use derivatives in certain circumstances.
Like the Fidelity funds, however, it too does not take part in stock-lending activity.
Performance of fund vs benchmark over 10yrs
Source: FE Analytics
The four FE Passive Crown-rated fund was launched in 1989 and over the past 10 years has delivered a total return of 158.22 per cent compared with the benchmark’s 163.76 per cent and has an r-squared figure of 0.96. The L&G Japan Index Trust has an OCF of 0.15 per cent.
L&G US Index Trust
The first of two US index trackers for investors of any age backed by the AFI panel is the L&G US Index Trust, launched in 1992. The £3.9bn strategy holds four FE Passive Crowns and aims to track the performance of the FTSE USA index.
While many US passive large-cap biased strategies focus on the blue-chip S&P 500 index, the L&G fund’s FTSE USA benchmark has a slightly larger pool of names to draw upon with an additional 120 stocks and covering approximately 98 per cent of the total US market by value.
Over 10 years, the L&G US Index Trust has generated a total return of 359.43 per cent, lagging the FTSE USA benchmark’s 381.51 per cent total return but ahead of the S&P 500’s 352.27 per cent gain.
Performance of fund vs benchmark & index over 10yrs
Source: FE Analytics
During that period, the fund has recorded an r-squared of 0.90 and an OCF of 0.1 per cent.
Vanguard US Equity Index
While LGIM has a long history as a passive investor in the UK market, US giant Vanguard has quickly established itself with its range of index-tracking strategies.
The Vanguard US Equity Index fund is the final member of this list of passive strategies for investors of all ages. The largest of the funds at £5.6bn, it was launched in 2009 and aims to track the S&P Total Market Index (TMI), which is not currently included available on the FE Analytics database.
The TMI aims to track the broad US equity market including large-, mid-, small- and micro-cap companies and has more than 3,800 constituents.
The fund aims to replicate the index by investing in all or a sample of securities making up the index. While it has the ability to lend stocks, in practice this tends to be limited, according to Square Mile Research & Consulting.
Since launch in 2009, the fund has delivered a total return of 352.16 per cent compared with a gain of 343.06 per cent for the blue-chip S&P 500 index – a sub-index of the S&P TMI.
Vanguard US Equity Index has an OCF of 0.1 per cent.