Homeowners Investment Fund Management, part of Homeowners Friendly Society, has created the Homeowners equity Isa to tempt investors back to the UK stockmarket.
This Isa is a tax wrapper around the Homeowners Investment growth fund, which is a tracker fund that invests in the shares which make up the FTSE 100 index. As the fund is not actively managed, it has a low annual management charge of 1 per cent and investors have access to their money at any time.
Homeowners Investment Fund Management say that although low interest rates and volatile stockmarket conditions have recently put people off investing, stockmarkets recover over the long-term, so an Isa investing in a tracker fund could take advantage of any growth, tax-free. However, there are many Isa-eligible FTSE 100 tracker funds around, including those from Norwich Union and Credit Suisse, so this product is nothing new.
One advantage of tracker funds is that, as they passively follow an index, investors do not suffer when a fund manager picks the wrong stocks. However, IFAs point out that where stockmarkets are falling, investors in tracker funds are hostages to fortune. IFA Chartwell currently favours actively managed funds over tracker funds, because stockpicking funds have the potential to outperform indices.
Another drawback is that the diversity of FTSE 100 tracker funds can be limited as stocks such as Vodafone constitute a large percentage of the index.
According to Standard & Poors, the Homeowners Friendly Society UK equity index fund is ranked 47 out of 65 funds based on £1,000 invested on a bid-to-bid basis with net income reinvested over three years to August 2, 2002.