Considering the FE five crown-rated Trojan Income fund has a total expense ratio of just 1.06 per cent, the so-called advantages of a cheap tracker fund over an active rival are called into question. However, there are some options that have a TER of less than 0.5 per cent and closely emulate the performance of their index. Here is a selection:
HSBC FTSE 250 Index – 0.27% TER
HSBC’s trackers are the cheapest on the retail market, with TERs of 0.27 per cent. While Vanguard’s funds are cheaper still, the minimum investment of £100,000 puts them out of reach of the average investor if they want to invest direct. This figure does come down significantly if one invests through a platform, however.
The HSBC FTSE 250 Index fund is particularly interesting given its performance relative to actively managed mid cap portfolios.
Funds with this focus typically find it difficult to add value, which is why a tracker may be viewed as a more attractive option.
According to FE data, the HSBC FTSE 250 Index portfolio has returned 54.07 per cent over a three-year period, compared with 57.77 per cent from the FTSE 250 index itself.
Over five years, the difference between the index and tracker is around the same margin.
Performance of fund vs tracker and index
| Name | 1-yr returns (%) | 3-yr returns (%) | 5-yr returns (%) | 10-yr returns (%) |
| FTSE 250 Index | -3.32 | 57.77 | 8.02 | 200.53 |
| HSBC FTSE 250 Index | -4.01 | 54.07 | 4.39 | 170.97 |
| Schroder - UK Mid 250 | -5 | 39.47 | -14.65 | 157.11 |
Source: FE Analytics
In the last decade, the tracker has returned 171 per cent. While this is close to 30 per cent less than the index, only two out of the six actively managed UK mid cap funds with a long enough track record – Franklin UK Mid Cap and Old Mutual UK Select Mid Cap – have managed to beat the FTSE 250.
The tracker has beaten Andy Brough’s £1.1bn Schroder UK Mid 250 fund – by far the largest and highest profile in the sector – with ease over one-, three-, five- and 10-year periods.
HSBC FTSE 250 Index is the only passive fund in the IMA unit trust and OEIC universe that gives investors access to the FTSE 250.
F&C FTSE All Share Tracker – 0.43% TER
Of all the FTSE All Share Tracker funds with a TER of below 0.5 per cent, the F&C FTSE All Share Tracker fund has matched the index the most consistently over the last decade.
According to FE data, it has returned 98.22 per cent over 10 years – just 5.04 per cent less than the FTSE All Share itself. The average UK All Companies and UK Equity Income funds have returned less than both over the period.
Performance of fund vs sectors and index
Source: FE Analytics
Over five years, the F&C FTSE All Share Tracker has returned 0.68 per cent compared with the index’s 1.91 per cent, while over three years manager Terry Wood has delivered 41.91 per cent compared with 44.32 per cent from the index.
Santander Stockmarket 100 Tracker Growth – 0.35% TER
The £72.9m Santander Stockmarket 100 Tracker Growth fund is second only to HSBC FTSE 100 Index in the cost stakes; however, it has matched the index far more consistently and has a lower annualised tracking error over three, five and 10 years.
According to FE data, Santander Stockmarket 100 Tracker Growth has fallen short of the FTSE 100 by just 0.22 per cent over one year, 1.74 per cent over three years, 0.24 per cent over five years and 3.3 per cent over 10.
It has a tracking error of less than 3.65 per cent over all four time periods.
Performance of fund vs index
| Name | 1-yr returns (%) | 3-yr returns (%) | 5-yr returns (%) | 10-yr returns (%) |
| FTSE 100 | 0.07 | 42.48 | 2.11 | 92.64 |
| Santander - Stockmarket 100 Tracker Growth | -0.15 | 40.74 | 1.87 | 89.34 |
Source: FE Analytics
Liontrust FTSE 100 Tracker has had a consistently lower tracking error, but it is more expensive, with a TER of 0.46 per cent.
The Santander portfolio has a minimum investment of £500.