Tracker funds underperform over ten years

Tracker funds underperform over ten years

Over the past decade, tracker funds have consistently produced below average performance, being ranked most often in the third quartile* of their Investment Association fund sectors for performance.

Over the past decade, tracker funds have consistently produced below average performance, being ranked most often in the third quartile* of their Investment Association fund sectors for performance.

Research undertaken by Chase de Vere, the national firm of independent financial advisers, found that the only region where a passive approach clearly produced above average performance over 10 years was in North America. This is perhaps the most efficient market in the world and a region where active managers have notoriously found it difficult to out-perform.

Chase de Vere looked at the five and 10 year performance of the mainstream tracker funds from BlackRock, Fidelity, HSBC and Legal & General, which was then compared with the performance of other funds in the relevant investment sector, including actively managed funds.

 

The research looks at only those tracker funds which have been running for 10 years, but most of the sectors only have two or three tracker funds which have been running for 10 years or more.

Also note that major low cost tracker fund provider Vanguard has no funds which have been running for that long in the UK and none of the providers have an emerging market tracker fund which has been running for 10 years.

 

The tables below show the performance and quartile rankings of each tracker fund in its Investment Association fund sector.

The quartile rank is a measure of how well a fund has performed against all other funds in its sector over a specified time period. Funds in the top 25% are assigned quartile 1, the next 25% are assigned a ranking of 2, the next 25% are given a ranking of 3, and the bottom 25% are given a ranking of 4.

Fund Five years Ranking Quartile 10 years Ranking Quartile
BlackRock UK Equity Tracker +54.6% 155/230 3 +68.0% 108/189 3
Fidelity Index UK +52.7% 163/230 3 +62.6% 125/189 3
HSBC FTSE-100 Index +46.9% 189/230 4 +57.0% 139/189 3
HSBC FTSE 250 Index +87.8% 42/230 1 +102.0% 44/189 1
HSBC FTSE All-Share Index +53.8% 158/230 3 +64.0% 120/189 3
L&G UK 100 Index Trust +47.2% 188/230 4 +62.5% 126/189 3
L&G UK Index Trust +54.1% 156/230 3 +69.6% 102/189 3

 

Europe ex UK

Fund Five years Ranking Quartile 10 years Ranking Quartile
BlackRock Continental European Equity Tracker +71.1% 57/82 3 +65.3% 42/65 3
HSBC European Index +72.7% 50/82 3 +63.7% 45/67 3
L&G European Index Trust +71.9% 55/82 3 +66.1% 41/65 3

 

North America

Fund Five years Ranking Quartile 10 years Ranking Quartile
HSBC American Index +135.7% 14/86 1 +185.2% 25/63 2
L&G US Index Trust +136.1% 13/86 1 +195.3% 18/63 2

 

Asia ex Japan

Fund Five years Ranking Quartile 10 years Ranking Quartile
BlackRock Pacific Equity Tracker +53.8% 43/75 3 +134.5% 26/54 2
HSBC Pacific Index +52.4% 45/75 3 +124.5% 39/54 3
L&G Pacific Index Trust +53.4% 44/75 3 +138.0% 24/54 2

 

Japan

Fund Five years Ranking Quartile 10 years Ranking Quartile
BlackRock Japan Equity Tracker +87.7% 24/52 2 +69.8% 24/42 3
HSBC Japan Index +86.9% 26/52 2 +64.9% 26/42 3
L&G Japan Index Trust +86.9% 27/52 3 +68.6% 25/42 3

 

“Strong case for including trackers in your portfolio”

Patrick Connolly, certified financial planner at Chase de Vere, says: “Passive investment funds are becoming increasingly popular and with good reason as many actively managed funds charge too much and deliver too little.

“However, our research indicates that the US is the only region where a passive approach has clearly produced above average performance. In part this is probably because active funds are likely to have a higher weighting in medium and smaller companies and these are likely to out-perform larger companies, which will be more heavily represented in trackers, over the longer-term.

“The challenge though isn’t just knowing that actively managed funds can out-perform, it is finding the ones that will. There is no secret recipe for doing this and so there remains a strong case for including low cost passive funds, particularly those investing in the US, in an investment portfolio.”

Published: 16 February 2017
Last updated: 16 February 2017

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