The Share Centre has unveiled a list of recommended index tracker funds, with BlackRock, Vanguard, Legal & General and HSBC funds all making the cut. The funds on the list are predominantly very low-cost and have tracked their indices well. But the list does not include any exchange-traded funds (ETFs). How do its low, medium and high-risk funds compare with ETFs following the same indices in terms of performance and costs?
LOW RISK
The Share Centre's low-risk grouping is predominantly made up of index-linked gilt tracker funds. Index-linked gilts are a good way of protecting against the future risk of inflation by guaranteeing returns that exceed it.
The stockbroker has selected BlackRock Index-Linked Gilt Tracker D Acc (GB00B83RVT96) and Legal & General All Stocks Index Linked Gilt Index I Inc (GB00B84VDP04). BlackRock's fund tracks the FTSE Actuaries UK Index-Linked Over Five Years index, while Legal & General's fund tracks the FTSE Actuaries Index-Linked British Government All Stocks index by investing in fixed-income securities within that index. Both are UK government bond indices, but the Over Five Years index is limited to bonds with longer maturity dates. Both bond funds and indices suffered big drops in March, although made up ground afterwards.
The BlackRock tracker has returned 5.4 per cent in a year, while the FTSE Actuaries UK Index-Linked index returned 6.3 per cent. Legal & General's tracker's performance was tighter, returning 4.8 per cent compared with 5.7 per cent for its index.
The Share Centre also includes two global bond trackers in its low-risk category. The platform says Vanguard Global Bond index (IE00B50W2R13) compares well with other passive funds and ETFs tracking similar indices on cost and performance. It says: "Vanguard has proved the use of its replication technique through closely matching returns to the index while maintaining a low ongoing charge. As this is a globally invested fund, the underlying assets are open to currency fluctuations; Vanguard hedges against unfavourable currency movements with the aim of reducing the impact on the fund. This fund can diversify a portfolio looking for exposure to the global bond market."
Similar low-risk ETF
ETFs tracking global bond indices include iShares Global Government Bond UCITS ETF (SGLO). That ETF tracks the bond markets of the countries making up the G7 economies. According to rating agency Morningstar: "This is an ETF that covers the whole maturity spectrum of the G7 government bond market, and so it could help investors to shield the overall investment portfolio against negative performance effects arising from market shifts across the yield curve, whether near-term tactical or long-term strategic in nature." But with a 0.20 per cent ongoing charge it is more expensive than the Vanguard tracker and has performed considerably less well.
MEDIUM RISK
FTSE 100, 250 and All-Share trackers dominate the Share Centre's medium-risk category. But it also includes low-cost global and regional funds such as Legal & General International Index Acc (GB00B2Q6HW61), at 0.08 per cent, and BlackRock Continental European Equity (GB00B83MH186), at 0.10 per cent.
Funds tracking the All-Share include Royal London UK All Share Tracker Z Acc (GB00B533V415). The platform says: "There are a large number of stocks listed on the FTSE All-Share and Royal London has been careful to select an optimised portfolio to closely replicate the index. In addition to this method, it also has a team at the helm to overlook buying and selling decisions, ensuring that the most cost-effective strategies are used."
The medium-risk category also includes two US funds - HSBC American Index (GB00B80QG615) and BlackRock North American Equity Tracker D Acc (GB00B7QK1Y37). BlackRock's fund is one of the lowest-cost tracker funds in the entire list, with an ongoing charge of 0.07 per cent. In 2014 it returned 20.2 per cent, compared with 19.6 per cent for its index, although in the year to date has fallen by 1.3 per cent compared with -0.1 per cent.
Similar medium-risk ETFs
According to Trustnet the average US equity ETF has fallen by -0.3 per cent in the year to date. iShares S&P 500 UCITS ETF (IUSA) ranks highly in Trustnet's own passive ranking system. Like HSBC's fund it tracks the S&P 500, which has returned 0.27 per cent in the year to date. In that time iShares ETF has returned 0.75 per cent, beating HSBC's fund at -0.61 per cent. Over the long term, both have tracked well but HSBC narrowly wins on a five- and 10-year basis. The more recent iShares Core S&P 500 (CSP1) performs better than its peer ETF, but has a shorter track record.
There are also a huge number of ETFs tracking the FTSE 100 and 250 indices. Consider iShares FTSE 100 UCITS ETF (ISF), which has slashed charges to 0.07 per cent.
HIGH RISK
The Share Centre's higher-risk index funds are concentrated in Asian and emerging markets funds such as BlackRock Pacific ex Japan Equity Tracker D Acc (GB00B849FB47) and Vanguard Japan Stock index (IE00B50MZ948).
The Share Centre is bullish on Asia generally. It says: "Across emerging markets we are seeing an improvement in corporate governance and a diverse opportunity set of companies and sectors in which to invest. Valuations across countries and sectors are widely diverse yet emerging Asia looks to be a more attractive opportunity over non-Asian emerging markets, which tend to be mainly commodity-focused."
In one year BlackRock Asia Pacific ex Japan has fallen by 3.9 per cent against its benchmark, the FTSE World Asia Pacific ex-Japan, which fell by 4.4 per cent.
According to Trustnet, the average emerging market equity ETF has returned an 8.7 per cent loss in one year, while the average Asia ex Japan ETF has fallen by 4 per cent.
A selection of the Share Centre's top trackers
| Fund | Cost | Index | Sector | Risk level |
|---|---|---|---|---|
| BlackRock Index Linked Gilt Tracker D Acc | 0.16% | FTSE Actuaries UK Index Linked Gilts 5 years | Index-linked gilts | Low |
| Vanguard UK Investment Grade Bond index Acc | 0.15% | Barclays Global Aggregate UK Non-Government Float Adjusted | UK | Low |
| Vanguard Global Bond Index Hedge Acc | 0.15% | Barclays Global Aggregate Float Adjusted Bond Index | Global | Low |
| BlackRock Global Property Securities Equity Tracker D Acc | 0.22% | FTSE EPRA/NAREIT Developed Index | Property | Medium |
| Aberdeen Foundation Growth B Acc | 0.09% | FTSE All Share | UK | Medium |
| HSBC FTSE 100 Index C Acc | 0.17% | FTSE 100 | UK | Medium |
| HSBC FTSE All-World Index C Acc | 0.30% | Ftse All-World | Global | Medium |
| Legal & General International Index Acc | 0.08% | FTSE World (ex UK) Index. | Global | Medium |
| Royal London UK All-Share Tracker Z Acc | 0.15% | FTSE All Share | UK | Medium |
| Vanguard FTSE Developed World ex-UK Equity Index Acc | 0.15% | FTSE Developed World Ex UK | Global | Medium |
| BlackRock Continental European Equity Tracker D Fund Acc | 0.10% | FTSE World Europe ex UK Index | Europe | Medium |
| BlackRock North American Equity Tracker D Acc | 0.07% | FTSE World North America | North America | Medium |
| HSBC American Index Acc C | 0.18% | S&P 500 | US | Medium |
| BlackRock Pacific ex Japan Equity Tracker D Acc | 0.19% | FTSE World Asia-Pacific ex-Japan | Asia | High |
| Vanguard Japan Stock Index Acc | 0.23% | MSCI Japan | Japan | High |
| Legal & General Global Emerging Markets Index C Acc | 0.23% | FTSE AllWorld Emerging | Emerging Markets | High |
| Legal & General Global Tech index Trust Acc | 0.46% | FTSE World IT companies | Technology | High |
