Trackers trump active funds for consistency

Even in the IMA North America sector, which is often cited as an example of where it is difficult to outperform with an active manager because it is such an efficient market, the pattern is repeated. The best performing tracker fund is the Royal London US Tracker with a return of 12.3 per cent compared with the sector average of 11.32 per cent and 29.14 per cent from the top-ranked New Capital US Growth fund, according to FE Analytics.

Of course, a 12-month period can be argued to be too short a time frame to gauge the performance of tracker funds – but, then again, if you are buying a tracker is outperformance what you’re really looking for?

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Consistency is normally the watchword for those taking a passive approach, or for adding a passive element to a portfolio, and the figures certainly bear this out.

For the 34 UK tracker funds the range of returns for the 12 months is remarkably narrow – from 14.42 per cent at the top to 8.35 per cent at the bottom – while for the sector as a whole the range widens, from 36.08 per cent at the top of the list to just 2.15 per cent at the bottom.

The consistency is even stronger in the US trackers, ranging from 12.3 per cent to 10.85 per cent, compared to the sector range of returns from 29.14 per cent to 5.01 per cent.

While tracker funds may not produce the stellar ‘shoot the lights out’ performance of their active counterparts, that is not what most people buy them for.

Nyree Stewart is features editor at Investment Adviser


The recent study published by the Pensions Institute at Cass Business School – New Evidence on Mutual Fund Performance: A Comparison of Alternative Bootstrap Methods – arrived at the following conclusion:

“The results prove that the vast majority of fund managers in our dataset were not simply unlucky, they were genuinely unskilled. However, a small group of ‘star’ fund managers are genuinely skilled and hence able to generate superior performance (in excess of operating and trading costs), but they extract the whole of this superior performance for themselves via their fees, leaving nothing for investors.

“Our final conclusion is that, while ‘star’ fund managers do exist, all the empirical evidence – including that presented here – indicates that they are incredibly hard to identify. For most investors, our results show that it is simply not worth paying the vast majority of fund managers to actively manage their assets.”