MONEY COMMENT
Trackers vs Fund Managers

By Jane Mack (TMFJane)
July 7, 2003

Generally speaking, active fund managers aren't very good at investing our money. We've said this numerous times but it's true and if there was ever a case for opting instead for a simple index tracker, then consider the following:

Eight out of ten active funds (82%) have failed to beat the benchmark FTSE All Share Index over the past 20 years.

Active funds cost more to invest in. Trackers typically have no initial charge and an annual management charge of 1% or less whereas managed funds often have initial charges of as much as 5% and annual charges of around 1.5%.

Fund managers tend to buy and sell more shares each year, so they incur more in the way of dealing charges too. This means that even less of your money is actually being invested.

The top managed funds will boast that they have performed magnificently for one, three or five years but ask how well they've performed over 20 years or more or whether it's the same 'good' fund manager running it, the answer will probably include one or more of the following:

• The fund didn't exist one, three or five years ago, let alone 20 years ago
• The fund was merged with another one (possibly because of poor performance) so you can't rely on the data for comparison
• The 'good' fund manager was poached by another company
• The 'good' fund manager got burn-out from shouting 'Buy! Sell! No, Buy!' into the telephone all the time and left to spend more time with his family

About a year ago, the Abbey National came up with a report which suggested that it was even worth finding out the star sign of a fund's manager as a method of choosing where to invest! (For optimum performance, pick a Piscean).

The fact is, despite their massive marketing budgets and huge press campaigns, most of the funds managed by these highly paid people don't beat the market average.

Remember, eight out of ten active funds (82%) have failed to beat the benchmark over the past 20 years. So why give your money to them?

For more on this subject see Why Index Trackers Beat Managed Funds and When Fund Managers Speak The Truth and Be Choosy With Your Tracker