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Trackers have the staying power to beat active funds

I would like to take issue with Philip Thomas (Money Marketing, April 26)

who seems to imply that trackers are only for suckers. I must therefore be

an idiot because my Virgin pension uses an index-tracking fund.

To advocate avoiding trackers “so as not to seriously damage one&#39s wealth”

is, frankly, a misleading statement from an IFA, if that is what I judge

him to be from his byline.

You simply cannot compare a tracker&#39s “underperformance” of the market

with an active fund manager&#39s under-performance of the market, as Mr Thomas

should well know. Trackers keep pace with their stockmarket index, usually

to within a fraction of a per cent. They do not “underperform” the market

in the traditionally accepted sense as an active fund manager might. I know

because I researched it before I bought my pension.

Mr Thomas also makes much of active management&#39s supposed ability to do

better than the market, something trackers can never do, he shockingly

reveals. What he conveniently forgets to mention is that over any five-year

period, perhaps only 20 per cent of active fund managers will outperform

the market.

That means there is an 80 per cent chance that the one you pick will

underperform the market and by a lot more than a fraction of a per cent.

The longer the timespan you look at, the worse it gets, as the number of

active managers still outperforming their index after 10 years falls to

something like 10 per cent, then 5 per cent after 15 years, eventually

falling off into nothing, like the long bleep on a cardiac arrest machine.

Ooh-er, my heart.

The whole point of the stockmarket for me and millions of other investors

is that over the years, for all its bulls and bears, it simply goes up more

than any other investment and it is that long-term growth I want to tap

into for my savings.

That is why God invented trackers, which guarantee me 100 per cent of that

upside. An active fund by comparison gives me at best only a one in five

chance of getting there, eventually no chance at all.If it is my mortgage,

retirement or some other long-term goal I am saving for, the case for

active management simply falls apart, Mr Thomas.

The truth is that, just as there are punters who like backing horses,

there will always be those who prefer the fun of picking their own stocks

or using an active fund manager to place their bets and if they

occasionally win a six-furlong sprint, good luck to them.

But investing for the long term is a bit like the Grand National, and we

all saw what happened this year. Compared with the staying power of a

tracker, active fund management usually falls at the third fence.

Archie Clifford

Forncett St Peter,



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