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Tracker funds can seriously damage your wealth

Manipulation of past performance figures to suit one&#39s argument is common enough among service providers but Virgin&#39s Andrew Stronach is clutching at straws when he claims that “since September last year only one fund in the UK all companies sector is currently in the black” (Money Marketing, April 12).

No one investing in the all companies sector last September would have done so with a view to obtaining a capitalised return over a period as short as six months.

Indeed, in the famous bet which Richard Branson made with Nicola Horlick – and lost – Virgin&#39s excuse was that the three-year period involved was too short a time period for a tracker to show that it could outperform a good actively managed fund.

Mr Stronach claims that “only an active fund manager is able to take a 19 per cent market fall and turn that into a 46 per cent fall in the fund”. What he fails to say is that only an active manager can take a 19 per cent fall and turn it into a profit – something a tracker can never do.

Past performance cannot guarantee the future but there is sufficient evidence within the all companies sector to indicate that finding the outperforming fund manager is a lot easier than finding a tracker which will ever outperform the index.

Trackers are investments for those who want to underperform the index in a bull market and want to guarantee losing money in a bear market. Far from forming “the basis for any sensible investor&#39s portfolio”, as Stronach suggests, they should be avoided so as not to seriously damage one&#39s wealth.

Indeed, anyone investing in Virgin&#39s own UK index-tracking fund would have seen the value of their investment fall over the last three months by 11.1 per cent (bid-to-bid, Standard& Poor&#39s, April 4, 2001) – from a fund which currently lies 254th out of 298 in the all companies sector.

At this rate, a 46 per cent annual loss is well within Virgin&#39s grasp.

Philip Thomas

Thomas Financial Planning,St Helens,

Merseyside

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