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's 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's “underperformance” of the market
with an active fund manager's 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's 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
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.
Forncett St Peter,