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Julian Gibbs

The problem with tracker funds is that they guarantee to underperform their respective index. This is because there are charges, albeit low. The average charges for FTSE 100 trackers are 1.7 per cent initial and 1 per cent annual. Furthermore, because nowadays there is a constant movement of shares in and out of the index, the cost of buying and selling these shares over the years adds up to a substantial figure.

The biggest unit trust tracking the FTSE 100 is that run by HSBC. Over the five years to December 1, 2001, this trust rose by 30.6 per cent whereas the index grew by 45.7 per cent – a difference of no less than 15.1 per cent.

A much better alternative for those who are prepared to invest for five years is the NDF Recovery Plan 2 with assets backed by Abbey National Treasury Services. Not only does it pay out the full rise in the FTSE 100 – that is, it would have paid out 45.7 per cent over the past five years as against the average of 34.1 per cent on FTSE 100 trackers – but it also offers a huge downside protection in that capital is returned in full unless the FTSE 100 falls by more than 50 per cent and fails to recover to or above its initial level.

Even if the index did fall by more than 50 per cent and not recover, the loss would be the same as for a tracker fund, that is, 1 per cent for each 1 per cent fall.

With the UK stockmarket at around 25 per cent off its high, it is highly unlikely that the FTSE 100 will fall by a further 50 per cent. The average returns over every five-year period since the FTSE 100 was introduced in 1984 is 61.1 per cent and, because the market is low, it is likely that over the next five years it will perform above average.

Quite rightly, Future Value Consultants has rated this product very highly, giving it nine out of 10 for all taxpayers. It is certainly the best low-risk growth investment now available.


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