Easy tracker fund portfolios for 2017 and beyond

Published by Moira O'Neill on 01 February 2017.
Last updated on 30 May 2017

The Financial Conduct Authority (FCA) recently highlighted ‘closet tracker’ funds as a big problem for investors. In its market study into the asset management industry, the city regulator estimated £109 billion of investor money is held in such funds.

The study adds fuel to the arguments of those who advocate tracker funds over active funds.

Index tracker funds aim to closely track the performance of a stock market index (such as a FTSE 100 tracker fund) by investing in companies within the index they track.

The purpose of this ‘passive portfolio’ management is to generate a return that is the same as the chosen index, instead of outperforming it. Because this investment strategy is not proactive, tracker funds are often cheaper than funds that are actively managed by fund managers.

And Moneywise’s own experience adds further food for thought: the tracker funds selected for Moneywise’s First 50 Funds list for beginner investors beat the performance of the active funds on the same list during 2016.

Moneywise’s easy portfolios

To help Moneywise readers make the most of their investments, we’ve created four portfolios from tracker funds in our First 50 Funds list.

I am calling our newly created 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, which are instant portfolios in themselves.

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

The trick when you start investing is to not make it too complicated. As you learn more, you can add different funds to the mix – including actively managed funds if you, like many investors, want to mix the two approaches.

We propose rebalancing the easy portfolios every six months – so you’re not trading them too much.

During a six-month period, one portion of the portfolio might have performed better than another.

Rebalancing means returning the portfolio allocation to the original percentages by selling some of the ‘winners’ and buying more of the ‘losers’. But as there are only a handful of funds in each portfolio, the rebalancing process won’t be too onerous – you’ll just need to
set a diary reminder to remember to do it.

We’ll monitor the performance of these portfolios. Plus we’ll explain how to do the first set of rebalancing in the August 2017 issue.

The easy portfolios

Tip: We’ve selected the ‘Acc’ share class – 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.

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. 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 stock market.

30% Fidelity Index UK Fund W Acc

This fund aims to replicate performance of the FTSE All Share Index. This index 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 diversifi er if you already have a lot of UK exposure in your portfolio.

Home and Away shares +

In addition to the two funds selected for the Home and Away portfolio, Home and Away shares + introduces small weightings in two additional funds to add a bit of spice – exposure to global small companies from developed countries, plus emerging market equities.

This portfolio is for someone with a larger portfolio of £50,000+ or so, who has time to keep track of more funds or who has some experience of investing.

25% Fidelity Index UK Fund W Acc

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 aims to achieve long-term capital growth by closely matching performance of the MSCI Emerging Markets Index of rapidly developing economies.

Simple two assets

This portfolio is suitable for a mediumrisk, long-term investor with fi ve years or more to invest, or for someone who is nearing retirement or in retirement. The bulk of the portfolio is in global shares, but it also has a large portion in UK government bonds for diversifi cation.

60% Fidelity Index World Fund W Acc

A good fund to start a portfolio with, it tracks performance of the MSCI World Net Return Index of large- and mediumsized companies from more than 12 developed countries.

40% Vanguard UK Gov Bond Index Acc

This fund can be used 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 fi xed-income securities denominated in Pound Sterling.

Simple two assets +

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

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

Holds bonds consisting mainly of large, corporate investment-grade bond issues with maturities of between one and five years (the safer end of the maturity spectrum because interest rate changes will have less of an effect on the outcome to the investor).

These portfolios have been selected by Moira O’Neill, editor of Moneywise, based on independent editorial criteria, and using her knowledge of investments based on 20 years of writing about investments. 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.

Note: 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.

Performance of First 50 Funds in 2016


 

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" 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."