Data shows that over 10 years the average UK All Companies fund with a track record that long has delivered 128.33%. The average tracker has returned 105.32% over this time, putting it a full 23% behind the average UK growth portfolio.
What is hidden in averages?
FE Trustnet highlighted the disappointing performance of certain specific index trackers, such as the £1.1bn Halifax UK FTSE 100 Index Tracking fund, which has returned just 71.76% over the past decade, around half as much as the index it is attempting to track. The fund’s 1% ongoing charge has contributed to this underperformance, but the tracker also has a high tracking error to its benchmark of 7.53%.
Not all tracker funds have significantly underperformed, notes the research. Those such as Scottish Widows UK All Share Tracker and M&G Index Tracker are both within 10% of their benchmark over 10 years and more recently Vanguard’s low-cost trackers have operated with very low tracking errors.
FE Trustnet points out that although the FTSE All Share has actually beaten the UK All Companies sector average over the past 10 years, the impact of charges over the long term ensures that passives will always underperform their chosen index – unless they have a particularly high tracking error which sees them somehow add value to their benchmark. FE has confirmed that survivor bias is included in the figures.