Tracker Funds

The argument for tracker funds as often stressed by the institutional passive investment houses Vanguard and Dimensional is that investment markets are efficient and that they do not believe that the majority of the active fund managers add value.  As actively managed investment funds have higher charges then they believe that investors are paying “over the odds” and would be better off cutting out most of the charges applied to investment funds and simply invest in passive funds investing in index or tracker funds.

We are not sure we totally support the “market efficiency” argument; however one of the main advantages of  using tracker or index funds is that as funds are primarily bought on a buy and hold basis – this protects investors from making irrational decisions about individual funds and market timing their investments. Typically most retail investors buy at the top of the market and sell at the bottom and therefore often fail to beat the market.

The latest news from the “passive” fund investment houses is that BlackRock (one of the largest institutional providers of tracker and index funds) are reducing the already very low charges on some of their most popular tracker funds.

In fact the new charges are fractionally above zero!

Essentially BlackRock is throwing down the gauntlet to other “passive” institutional providers and these reductions could could lead to an index or tracker fund price war amongst the institutional fund managers.  Any reduction of charges to investors is welcome particularly if charges were the only factor to take into account choosing investments for clients.

But charges are only a part of the research …

We also investigate investment performance, naturally we are required to caveat any fund choices with “past performance of investments will not necessarily reflect future investment performance” and this is what we are required to state when recommending investment funds. However this simple caveat is not necessarily the full story – we would rather state that “good investment performance will not necessarily persist in future years – but poor performance almost always repeats” 

Not only should investment charges be considered but before choosing investments it is necessary to carry out research into past performance, several years ago to carry out meaningful investment research on an investment portfolio would have taken days. Fortunately technology has moved on, it is possible nowadays to use  “state of the art investment software” – we bought into a fantastic software investment tool sometime ago – it not only provides data for individual funds but it provides for dynamic portfolio planning. This has not only saved us a great deal of time but using this fabulous tool enables us to provide a superior service to our clients.

We have put analysed a  number of tracker funds using this software and the results from a number of them are quite frankly rather disappointing.  To summarise we fully support reduction of charges for tracker or index funds, or for any investment for that matter. But charges are only one aspect to consider – so we would always recommend full research before compiling a portfolio or choosing a investment.



Ray Best is a resilient Financial Planner with a unique approach to investment planning, his work ethic has propelled him from humble beginnings to be voted as a top UK Financial Planner by Vouched For (as published in the Sunday Times). These days he works with families with large investment portfolios or big inheritance tax liabilities, the first step, is to book a Discovery Meeting HERE.

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