"I refer to the article written by Stephen Spurdon sighting evidence by Jason Britton of T Bailey "proving" the underperformance of trackers over the long run. Whilst I commend the balanced approach the author has taken, sadly I cannot applaud the research by Mr Britton.
There is a mass of research by academics that proves the long term benefits of investing via passive funds. However, sadly as with much research trying to negate this style of investing produced by the “active industry”, the in built bias is clear to see.
Comparing a FTSE All Share Tracker with the IMA UK All Companies sector is like comparing apples with pears. Whilst the tracker will invest 100 per cent in the FTSE All Share, the active funds in the sector have a benchmark whereby only 80 per cent of the fund needs to be invested in this index.
However I agree with Mr Britton that the average tracker is not good enough. Looking back fifteen years it was not unusual to find trackers with upfront charges of 5 per cent and management charges of 1 per cent per annum. Indeed Virgin still charges this very steep annual management charge. This is simply not necessary.
Fortunately things have improved and passive managers have become much more sophisticated. ETFs, for example, greatly cut down the risk of tracking error."
- James Norton, Director, Evolve Financial Planning
"Expecting a publication devoted to picking stocks to recommend tracker funds is a bit like asking turkeys to vote for Christmas. Even so, your article on trackers distorted the argument against trackers.
To claim, as your writer did, that "new research" tips the argument is misleading. The material quoted as research was simply a highly misleading piece of marketing from an active fund manager promoting its own range of funds.
More significant though is the totally false comparison that the fund manager makes between single asset class investments, trackers, and multi-asset class investments. The latter will have a variety of asset classes that will behave in a totally different way to equities, and certainly the narrow range of equities in a tracker. Comparing returns between asset classes to make a sales point, without mentioning the different risk profiles, is one of the oldest tricks in the financial services sales book.
More worrying is that the article makes no reference to the voluminous academic data that illustrates just how efficient the market is and how difficult it is for any one manager to beat it on a consistent risk adjusted basis. As the recent collapse of numerous hedge funds has demonstrated, returns can be increased by taking on higher levels of risk. But ultimately those risks still remain and return when they are least expected."
- Robert Davies, Managing Director, Fundamental Tracker Investment Management
