FTSE 100 tracker funds are a popular investment here in the UK. That’s because the ‘Footsie’ is the UK’s main stock market index.
But are these tracker funds actually a good investment? Let’s look at the historical performance to find out.
How have FTSE 100 trackers performed?
To answer the question, I’m going to look at the performance of the iShares Core FTSE 100 UCITS ETF (Acc) over the last decade.
This is an accumulation ETF, meaning that its performance figures include dividends (a large chunk of the Footsie’s return).
Now, 10 years ago, this ETF was trading at 8,686p. However, as I write this (on Friday 10 November), it’s trading at 13,731p.
This means that over 10 years, the fund has returned about 58%, or approximately 4.7% per year on an annualised basis.
In other words, if I’d put £10k into this ETF a decade ago, I’d now have around £15,800.
Is that a good return?
Not really, to my mind.
Sure, it’s a higher return than cash savings would have generated over that time frame.
For most of that period, savings accounts were paying 1% or less.
However, it’s not a great return when one considers the performance of:
- S&P 500 tracker funds – over the last 10 years, the iShares Core S&P 500 UCITS ETF USD (Acc) has risen about 275%, turning £10k into around £37,500.
- Global tracker funds – over the last decade, the iShares Core MSCI World UCITS ETF USD (Acc) has risen about 185%, turning £10k into a little under £29k.
- Some actively managed global equity funds – over the last 10 years, Fundsmith Equity has returned about 14.7% on an annualised basis, turning £10k into almost £40k.
- Some individual UK stocks – over the last 10 years, shares in London Stock Exchange Group have risen about 480%. Meanwhile, shares in Ashtead Group are up about 630%.
- Some individual US stocks – over the last decade, Apple shares are up about 880%. Tesla shares have done even better, returning about 2,200%.
Better ways to invest?
Now, past performance is not an indicator of future returns, of course. And I’m cherry picking top-performing stocks.
But I think the takeaway here is that long-term investors like myself can generally do better than a FTSE 100 tracker fund.
Footsie trackers do have their advantages. With these funds, one can get exposure to a basket of UK stocks at a low price and instantly diversify their investment portfolio.
However, if one wants to achieve high returns from the stock market (and who doesn’t?), I think they are better off being a little more adventurous.
By taking a more diversified approach to investing, and allocating capital to global and international funds (both active and passive), as well as some individual stocks that have the potential to beat the market over the long run (The Motley Fool’s Share Advisor can be a great source of ideas here), investors may be able to give themselves a better chance of success.