Easy tracker fund portfolios for 2018 and beyond

Published by Moira O'Neill on 01 February 2017.
Last updated on 13 February 2018

We explain how beginner investors can use the tracker funds in Moneywise’s First 50 Funds to build simple, low-maintenance portfolios

Index tracker funds aim to replicate the performance of a stock market index, such as the FTSE 100 or FTSE All Share, by investing in the companies that make up the index.

Because this investment strategy is not proactive, it can be achieved by computers. This means tracker funds are often much cheaper than active funds that are managed by professional fund managers who are paid to make buying and selling decisions. But by keeping your money in a tracker fund, you’ll never have the chance to grow your money faster than the stock market.

At Moneywise, we think investors should mix both approaches in their portfolios, using low-cost tracker funds for the core of their portfolios and then adding in satellite active funds to try to enhance performance. See our guide to both sides of the active vs passive debate.

But even if you hold tracker funds, you should actively manage them, and this can be done in a very low-maintenance way. 

Moneywise’s easy portfolios

In January 2017, we created four portfolios from the tracker funds in our First 50 Funds list – you can find the full list at www.moneywise.co.uk/first-50-funds.

I call our tracker portfolios “easy” to signify that they will take very little effort to run and maintain.

However, if you want absolute minimum effort, then you could buy one of the three Vanguard LifeStrategy Funds in the First 50 Funds list, which are instant portfolios in themselves.

Moneywise’s “easy” portfolios are the next step up in terms of effort required, but managing them will help you understand the investment process better.

We propose reviewing and rebalancing your chosen tracker fund portfolio no more than every six months. Or you could rebalance them once a year, which is probably more than enough for a beginner investor.

Rebalancing means returning the portfolio allocation to the original percentages by selling some of the ‘winners’ and buying more of the ‘losers’. This means that you’re potentially buying more assets cheaply and selling them when they’re expensive. In May 2017, research from investment firm Fidelity International found that regularly reviewing and rebalancing your portfolio could have boosted your investment returns by almost 10% over 20 years.

As there is only a handful of funds in each portfolio, you’ll just need to set a diary reminder to remember to rebalance your portfolio.

What if the portfolio allocations haven’t changed? If the allocation remains close to the original, leave your portfolio alone until the next review. Two of our easy portfolios don’t need any action at all based on their performance over the past year (see the tables, below).

To buy these funds, you’ll have to first choose an investment platform. Find out more at www.moneywise.co.uk/best-platforms. Check what charges you’ll incur on your chosen platform. Fund trades on many platforms don’t cost extra over the annual platform charge, but some may charge extra for trading or may have a fixed fee plus trading charges on top.

Particularly if you have a small portfolio, you should watch out for any dealing fees that may be incurred when buying and selling investments to make sure they don’t wipe out any potential gains from this strategy.

The easy portfolios

We’ve selected the ‘Acc’ share class for each fund – otherwise known as accumulation. This is where any money earned is reinvested. If you don’t want your earnings reinvested, you need to look for the ‘Inc’ (Income) share class.

The original portfolios launched in January 2017 included the Fidelity Index UK Fund. We replaced this fund in July 2017 with the L&G UK Index Trust, which is very similar and has tracked the performance of its benchmark index much better.

HOME AND AWAY SHARES

This is a shares-only portfolio for someone with a high appetite for risk or a long investment time frame of 10 years or more. You can use this portfolio for small amounts and build it up over time. We’ve used a simple split between UK and global shares (with the bulk in global). Many investors make the mistake of being too focused on their home country’s stock market.

30% L&G UK Index Trust

This fund aims to replicate performance of the FTSE All Share Index, which represents 98% of companies traded on the London Stock Exchange.

70% Vanguard FTSE Developed World ex-UK Equity Index Fund Acc

This fund is a good diversifier if you already have a lot of UK exposure in your portfolio.

HOME AND AWAY SHARES +

This portfolio is for someone with a larger portfolio of £50,000-plus or so, who has time to keep track of more funds or who has some experience of investing. It introduces small weightings in global small companies from developed countries, plus emerging market equities.

25% L&G UK Index Trust

60% Vanguard FTSE Developed World ex-UK Equity Index Fund Acc

10% Vanguard Global Small Cap Index Fund Acc

This fund tracks performance of the MSCI World Small Cap Index of smaller companies in developed countries.

5% Fidelity Index Emerging Markets W Acc

This fund seeks long-term capital growth by closely matching the MSCI Emerging Markets Index of rapidly developing economies’ performance.

SIMPLE TWO ASSETS

This portfolio is suitable for a medium-risk, long-term investor with five years or more to invest, or for someone who is nearing retirement or already retired. The bulk of the portfolio is in global shares, but it also has a large portion in UK government bonds to diversify away from shares.

60% Fidelity Index World Fund W Acc

This fund tracks performance of the MSCI World Net Return Index of largeand medium-sized companies from more than 12 developed countries.

40% Vanguard UK Gov Bond Index Acc

Use this fund to achieve lower-risk diversity from an equity portfolio. It seeks to provide returns consistent with the performance of a market-weighted bond index of UK government fixed-income securities denominated in Pound Sterling.

SIMPLE TWO ASSETS +

The portfolio would suit a medium-risk, long-term investor with a larger portfolio of £50,000-plus or who feels more confident about investing. It adds more complexity in the form of small-cap equities and some corporate bonds.

50% Fidelity Index World Fund W Acc

10% Vanguard Global Small Cap Index Fund Acc

30% Vanguard UK Gov Bond Index Acc

10% L&G Short Dated Sterling Corp Bnd Index I Acc

This fund holds bonds consisting mainly of large, corporate investment-grade bond issues with maturities of from one to five years (the safer end of the maturity spectrum as interest rate changes will have less impact).

Click on the table below to see a larger version. 

Easy tracker fund portfolios for 2018 performance data table

NOTE: These portfolios have been picked by Moira O’Neill, editor of Moneywise, based on independent editorial criteria and her 20 years’ experience of reporting on investments. If you are at all worried whether these portfolios will suit you, please contact an independent financial adviser. 

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Leave a comment

I need advice on investing

I need advice on investing 30000

" If you are at all worried

" If you are at all worried about making a selection or feel that you don’t have enough expertise to know if these portfolios are right for you, please contact an independent financial adviser."

Am I right in presuming that

Am I right in presuming that high performance mean that these funds were at the risky end of the spectrum? I'm looking (as I'm at pensionable age) for lower risk trackers - is there somewhere where I can see what funds do well (compared to other funds with similar spreads of risk - like for like ). As you can tell, I'm a novice. I have no idea if a FTSE 100 tracker is considered relatively low/mid-/high risk, compared to other FTSE trackers, or international trackers or what. I trying to avoid too much information and to find where I can put a portion of my investments in moderate risk for 5-10 years

Laurence, you can view

Laurence, you can view performance of all funds using Moneywise's comparison tool at https://www.moneywise.co.uk/compare-funds-and-investment-trusts. 

A FTSE 100 tracker is considered high risk as it is entirely invested in 'equities', a word for company shares, the highest risk type of investment.

To lower your risk you need to diversify your equity exposure by adding bonds. These perform differently to equities at different times in the market cycle so you should have a less bumpy ride.

Vanguard LifeStrategy 20% Equity is a low-risk fund that provides some upside potential from investing while limiting the risk of losing your money. It has 20% exposure to globally diversified equities with the remainder in globally diversified government and corporate bonds. The underlying portfolios are wholly made up of Vanguard index tracker funds. For a bit more risk, use Vanguard's 40% equity version.

what are the charges for

what are the charges for investing

I'm interested in starting a

I'm interested in starting a investment portfolio but i'm not sure how to get started with it can you advise me what my first step would be.

Hi Eddie,

Hi Eddie,

Thank you for your comment. Have a read of our guide to investment platforms for beginners:
https://www.moneywise.co.uk/investing/first-time-investor/our-guide-to-the-best-investment-platforms-beginners

On it you'll find a run-down of the best providers of Stocks and Shares Isas depending on your circumstances.

Hope that helps!

Regards,

Moneywise Edmund

Hi everyone

Hi everyone

After reading the Bogglhead Guide and a set of articles on monevator.com I wanted some of your advice please. Apologies for what are most likely extremely trivial and basic questions to follow.

23 years old

Desired asset allocation
- 70 equities - 15% Domestic, 45% World, 10% Emerging Markets
- 30% bonds

Lump Sum investment - 10k
Monthly Investment - £1700

Through comparison wesbites, iWeb seems to work out as the cheapest ISA platform.

In terms of specific funds for the desired asset allocation here is what I have narrowed it down to:

Domestic Equities - 15%
- iShares UK Equity Index Fund D (GB00B7C44X99) OCF 0.06%
- Fidelity Index UK Fund P (GB00BJS8SF95) OCF 0.06%
-Vanguard FTSE UK All Share Index Trust (GB00B3X7QG63) OCF 0.08%

International ex-UK equity - 45%
- L&G International Index Trust I (GB00B2Q6HW61) OCF 0.13%
- Vanguard FTSE Dev World ex-UK Equity Index (GB00B59G4Q73) OCF 0.15%

Emerging Markets Equity - 10%
- Fidelity Index Emerging Markets Fund P (GB00BHZK8D21) OCF 0.21%

UK Govt Bonds - Intermediate - 30%
- Lyxor FTSE Actuaries UK Gilts (GILS) OCF 0.07%
- Vanguard UK Government Bond ETF (VGOV) OCF 0.12%

Questions
1. Most of the above are index funds - I have read that for UK investors ETF equivalents are cheaper? Could this be elaborated please with regards to the pros and cons of the index funds vs ETF's in this case?

2. Is there anything which sounds alarm bells or you think could be changed/improved?

3. iWeb states a transaction fee of 0.5% and a dealing commission of £5 - are these applicable on a monthly basis where each fund is bought?