S&P research shows for the final three months of 2001, passive funds beat index after charges
Most UK index-tracking funds outperformed their benchmark index after charges over the final three months of last year, according to figures from Standard & Poor's.
The ratings agency found that all of the seven FTSE 100 index trackers covered in its research outperformed the index in the three months to 31 December 2001. These include Scottish Widows UK Index Trust which outperformed the FTSE 100 by 0.9% over this time period, and Liontrust Top 100 fund which outperformed the index by 0.2%.
Also included in the survey were the Barclays FTSE 100 and HSBC Index Tracker Investment Funds, FTSE 100 Index products which outperformed the index by 0.2% and 0.1% respectively. The figures used were based on capital appreciation only, with no income reinvested and after fees.
Standard & Poor's also found that most of the FTSE All-Share trackers covered by its research outperformed the index, with 10 out of 12 doing this in the last three months of the year.
These include the Dresdner RCM UK Index Trust, which outperformed the FTSE All-Share by 0.5% over the three-month period and Legal & General UK Index Trust, which outperformed the FTSE All-Share, also by 0.5%.
The ratings agency said that one of the factors behind the outperformance of tracker funds has been fund managers anticipating changes in stock market indices before they took effect.
The changes in FTSE UK index constituents take place seven trading days after they are announced, thus creating an opportunity for tracker fund managers to add value. When stocks join an index, they tend to see their price rise as all tracker funds look to buy into them but buying the stock before it joins the index will tend to give a boost to performance.
Recent examples of stocks moving between indices include P&O Princess Cruises which replaced GKN in the FTSE 100 index in December last year, a move which had been widely expected.
Other All-Share trackers which outperformed their index over the past three months of 2001 include Royal & Sun-Alliance FTSE All-Share Tracker Fund, which outperformed the index by 0.4% over this time period.
The Scottish Widows UK All-Share Trust beat the All-Share by 1% over the last quarter of last year while the Fidelity Moneybuilder Index fund outperformed the All-Share by 0.1%.
However, the two FTSE 250 trackers covered by Standard & Poor's research both underperformed their benchmark indices.
The Govett FTSE 250 Index fund underperformed the FTSE 250 by 1.2% over the last quarter of 2001, despite posting a return of 15.7% over this time period.
The HSBC Index Tracker Investment Funds - FTSE 250 Index underperformed the mid cap index by 0.2% over the same time period with a return of 16.7%. Among recent changes to the FTSE 250 index made at the end of last year, Psion has returned to the index after previously being demoted to the small cap index while Thus has also returned to the FTSE 250.
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