Time for a FTSE100 tracker?

[DoubleSix]

K12beano said:

Whilst trackers seem great, it always concerns me that people walk into them without thinking of the dividends that the underlying stocks would have attracted.

Strikes me that simply buying a tracker is a pretty poor deal, even if the costs are low.

Thoughts?

The vast majority of ETF trackers pay the yeild on the underlying so not sure why you think people are missing out.

[PugwasHDJ80]

K12beano said:

Whilst trackers seem great, it always concerns me that people walk into them without thinking of the dividends that the underlying stocks would have attracted.

Strikes me that simply buying a tracker is a pretty poor deal, even if the costs are low.

Thoughts?

My understanding is that you can choose to receive the dividends or re-invest

[JBM78]

Any tips on which investment brokers to use? Vanguard have been mentioned here a few times, Fidelity seem to have low rates too. Any other ideas?

[DoubleSix]

iShares, DBS Trackers, Boost....

There's loads out there.

[Revisitph]

K12beano said:

Whilst trackers seem great, it always concerns me that people walk into them without thinking of the dividends that the underlying stocks would have attracted.

Strikes me that simply buying a tracker is a pretty poor deal, even if the costs are low.

Thoughts?

A tracker is merely a way of stockpicking; you chose which index you want to follow* (e.g. FTSE 100 - 100 biggest listed UK companies - most of which are so big they are not really UK companies but are global) and the tracker fund buys those shares in proportion to the % they form of that index. For the FTSE 100 that would be about 7% in HSBC, 5.5% in one of the Shell companies, 5% in BP, 4% in GlaxoSK, 3.85% in BAT and so on.

In a "physical" tracker, the fund buys the shares; in a "synthetic" one, they buy a replication of those holdings from another party - I prefer the former. Either way, you get the dividends from "your" holdings in those companies. You can chose to have the dividends paid out as income into your bank account outside an ISA, into your ISA (for re-investment or withdrawal if you prefer) from income (INC) tracking funds, or with some funds you can have the dividends automatically reinvested into an accumulation (ACC) fund.

There are loads of providers available; look at the costs of the "platform" - the people providing access to the funds, and at the cost of the funds themselves - both range widely and, remembering that yield (dividends as a percentage of the cost of the index) has been about 3% recently, think what effect a 0.15% vs a 1.9% total fee package will cost you in terms of gobbling up your dividends (or even capital) - and remember that the fee is usually charged on the WHOLE OF YOUR HOLDING (sorry for shouting but an important point). There is a lot more about fees, how well trackers follow indices and much else, and the arguments about how concentrated your risk is in a FTSE 100 fund vs a wider one, whether active vs passive funds are worth it and a whole lot more.

I used to have various index trackers with a huge and well-known company mentioned earlier but after a catalogue of errors by them and uncompetitive charges I've moved towards ~70% of equities in various broad low-cost exchange traded fund (ETF) trackers - now often administered by Vanguard, 20% in my own selection (with a very unfashionable but, over the long term very profitable, skew to big mining, and some disastrous but small investments in hot tips - I never follow those now), 10% managed. All are held with my bank in a zero charge ISA but a ?£12 per transaction fee - that is high per-deal but not a big issue as I only trade my ISA about 12 times a year, dripping in the ISA allowance and adding the dividends to the money going in. I'm not keen on timing, though I was on holiday last week and missed my usual mid-month drip, so bought yesterday at a higher price (which happened to be a FTSE100 ETF - Vanguard VUKE with a 0.09% annual management fee) - still, yesterday's buy is up 0.9% today - though that's irrelevant in the long term.

Note, you can buy exchange traded funds in pretty much *any index - for example, if you think that lean hogs (pigs for eating) are the hot investment, you can buy into the lean hogs index (INDEXDJX:DJUBSLH) which buys you a rasher or two (!) of a single 40.000 (US) lbs load of pork meat.

In conclusion, my comment on "thinking of the dividends / poor deal" is that it might be worth looking at what happens to those dividends... in all the low cost trackers I invest in, I get paid the dividends and aim to keep them tax-free in the ISA for reinvesting.

Edited by Revisitph on Tuesday 21st October 20:42

Edited by Revisitph on Wednesday 22 October 08:16

[Mattt]

Think with FTSE trackers are there are those companies forming part of the index that you'd never consider buying normally, I know that many managed funds have under performed the FTSE but there are some star managers that you'd do better with IMO.

That said, FTSE is an easy option.

[K12beano]

I stand corrected on my scepticism and naivety over the dividend position - thanks all!

[Ginge R]

The problem with a boggo standard FTSE100 tracker is that since the global financial crisis many companies have cut costs aggressively, which is great for investors but the very largest companies have been laggards. Large companies are now becoming more answerable to shareholders and are much more vulnerable to corporate activists, bidders and bloggers. Smart Beta is evolving as a credible (still though, the jury is out) way of diversifying risk with passive funds and passive trackers.

[Revisitph]

Ginge R said:

The problem with a boggo standard FTSE100 tracker is that since the global financial crisis many companies have cut costs aggressively, which is great for investors but the very largest companies have been laggards. Large companies are now becoming more answerable to shareholders and are much more vulnerable to corporate activists, bidders and bloggers. Smart Beta is evolving as a credible (still though, the jury is out) way of diversifying risk with passive funds and passive trackers.

If the largest have been laggards but are becoming more answerable, wouldn't that be a recommendation for a FTSE 100 (and other big company indicies VWRL, H50E, etc)? If they are still to cut costs and increase shareholder return?

Smart beta seems one way forward, but if one has (again I have an interest) a basic "smart" fund like EUDV, USDV or UKDV you are, like all passives, relying on past performance. I don't know if Tesco is or was in there, but it posted good returns for a long time!