reported a difference of almost 9% between the best and worst performing FTSE 100 index tracking fun...
reported a difference of almost 9% between the best and worst performing FTSE 100 index tracking funds over the past three years.
Total accumulated assets on a £1,000 investment on 1 May 1997 in the top-rated Marks & Spencer UK 100 Companies Fund, run by Barclays Global Investors, would have grown to £1,506.72 on an offer to bid basis, with income reinvested.
An identical investment in the bottom-rated Scottish Widows FTSE 100 Fund, which is a rebranded Lloyds TSB fund following its takeover of Scottish Widows, would have grown to just £1,378.96.
Scottish Widows Investment management also has a FTSE 100 tracker, which is ranked fifth by Standard & Poor's for returns of £1,483.64.
Ellen Crabtree, unit trust marketing manager at Scottish Widows Fund Management, said the difference in tracker performance came from charges, although tracking error accounted for some of it. She said that this could be clearly seen between the Scottish Widows UK Index Fund and the Scottish Widows FTSE 100 fund.
The ex-Lloyd's FTSE fund has an initial charge of 6% compared with Scottish Widows tracker, which has a 0% initial charge and 0.5% renewal.
The two funds will be merged later this year, probably into an Oeic structure, although no formal plan has been decided on.
According to Standard & Poor's Micropal, the bottom five funds all have initial charges of between 2.5% and 6% and annual charges of between 0.75% and 1%.
Only one of the top five funds has an initial charge, City Financial NetPEP Tracker, which has a 1% up front cost. Annual fees ranged from 0.35 to 1%.
In some cases, Crabtree said, it is tied funds, sold mainly through bank branches, such as the Scottish Widows FTSE 100 and the Barclays FTSE 100, that have the highest charges reflecting direct sales to captive customers rather than through IFAs.
The effect of those charging regimes is accumulated total sums on an investment of £1,000 three years ago are predicted to be between £1,483.64 and £1,506.72 for the top five funds, while the bottom five would have reaped between £1,378.96 and £1,403.15.
Average volatility for the top and bottom performing funds is almost identical, which according to James Tew, head of fund research at Standard & Poor's, indicates a fairly even distribution of tracking error.
He said: "The majority of the performance difference between index funds would come out of the charging, but the deviation caused by tracking errors is enough to measure and can be significant. If you are losing 0.25% of the index a year, it adds up."
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