Are these toxic trackers lurking in your portfolio?

Tracker funds are simple products designed to replicate market performance – but beware legacy products that are uncompetitive and could erode your returns.

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  1. Rob Morgan

Passive investments have been growing in popularity in recent years. In contrast to ‘active’ funds that employ fund managers to try and select the best performing investments, passive investments or ‘trackers’ simply aim to replicate the performance of an index, say, the FTSE 100, usually by holding all or most of the constituents.

Investors are generally attracted to them due to their simplicity and low charges. While they are not designed to beat the market they shouldn’t underperform by a significant margin either, whereas ‘active’ managers who aim to outperform offer a less predictable outcome.

Our view is that there are pros and cons for both methods, and we seek to identify the best of both fund types – passive and active. As far as the former is concerned we look for those with a high level of transparency and low costs. Indeed, passive investing has seen something of a ‘price war’ in recent years with groups such as Vanguard and Fidelity cutting charges as their funds have increased in size.

Unfortunately, the same cannot be said for some other passive funds. There are older investments with high charges that make them uncompetitive in today’s market. Despite this, certain ones remain popular with significant assets under management.

Below I have listed the ten most expensive unit trust / OEIC tracker funds by OCF (Ongoing Charges Figure) to highlight the issue. OCF measures the annual costs of a fund. With a FTSE All Share tracker available from Fidelity at just 0.06% a year the contrast is stark, even allowing for the fact that specialist indices may be more expensive to replicate.

By way of further comparison, a typical actively-managed fund actually has lower costs than the dearest trackers – 0.7 to 1% is typical.

Table: The most expensive tracker funds by OCF

Fund

OCF

Family Charities Ethical

1.51

SJP Index Linked Gilts L

1.17

Halifax UK FTSE 100 Index Tracking C

1.06

Janus Henderson Inst UK Equity Tracker Trust

1.04

Halifax UK FTSE All Share Index Tracker

1.03

Scottish Widows UK Tracker G

1.00

FP Henderson Rowe FTSE RAFI Emerging Markets

0.86

Quilter Investors Gilt Index A

0.70

Janus Henderson UK Tracker A

0.69

Janus Henderson UK Index A

0.69

We believe in paying a fair price for genuine active funds aiming to add value, while using passive strategies to help reduce the effect of charges on portfolio returns. High-priced trackers represent the worst of both worlds: no ability to add value, merely to subtract it through high costs. If you have any of these investments, or other passive or tracker funds with heavy ongoing costs, it could be worth switching to a better-value alternative to avoid paying over the odds.

Methodology

The list is produced by filtering the universe of UK domiciled (‘onshore’ retail unit trusts and OEICs) by ‘passive/index tracking’ as the Investment Style and then ranking by highest OCF of the main unit class. The data was taken from FE Analytics on 22/08/19.

Past performance is not a reliable guide to future returns. This website is not personal advice based on your circumstances. No news or research item is a personal recommendation to deal. Investment decisions in fund and other collective investments should only be made after reading the Key Investor Information Document or Key Information Document, Supplementary Information Document and Prospectus. If you are unsure of the suitability of your investment please seek professional advice.

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