Trustnet focuses on the UK’s finest passive funds that have delivered the best returns in the last five years.
A passive fund aiming to replicate the performance of the FTSE 100 could be a good place to start, as experts suggest UK investors should have a quarter of their portfolios in domestic equities. .
The UK blue chip index may not include technology leaders like the S&P 500 or luxury goods giants like the CAC 40, but there are sectors with unique strengths such as finance, energy and consumer staples.
As a result, allocations to the FTSE 100 allow investors to create diversified portfolios and gain exposure to a world-class business.
FTSE 100 – Sector weights at the end of 2022
Source: Sibris Research
Over five years, an investment of £1,000 in the FTSE 100 index itself would have increased by £1,173.38, or 17.3%. But which index tracker comes closest to this result?
There are eight funds in the IA UK All Companies sector that track the FTSE 100, with the HSBC FTSE 100 Index having the most index-matched returns over the past five years.
This £1.5 billion fund turned an initial investment of £1,000 into £1,173.38 (or a 17.2% return) over the period covered. Only £1.68 off the underlying benchmark.
Payback in 5 years for a £1,000 investment
Source: FE Analytics
As expected, the HSBC FTSE 100 Index is the best on the list at replicating the FTSE 100 performance with a tracking error figure of 5.45.
among them Guide to Passive, FE Fund Info defines tracking error as: “This indicator is a measure of the volatility of the difference in returns between a fund and its benchmark. A fund that perfectly replicates the performance of the underlying index will have 0 tracking error as the day-to-day behavior is the same. .”
FE Fundinfo analysts also see fund size as an important metric for passive funds. However, unlike active funds, trackers benefit from scale when replicating the index, so it is better to go big. Larger sizes can also indicate better liquidity, which means smaller buy/sell spreads.
L&G UK 100 Index Trust, Vanguard FTSE 100 Index Unit Trust and iShares Core FTSE 100 UCITS ETF also performed well in the study, with returns at £1,000 within £5 of their benchmark returns.
The Vanguard FTSE 100 Index Unit Trust is the cheapest passive fund that tracks the FTSE 100, with a recurring charge figure (OCF) of 0.06%. The iShares Core FTSE 100 UCITS ETF, on the other hand, is the largest he FTSE 100 tracker with around £11 billion under management.
At the bottom of the table are the Marks & Spencer UK 100 Companies, whose return of £1,153.53 on their first £1,000 is £19.85 below the return of the FTSE 100, a difference more than ten times that of the best tracker.
It is the most expensive FTSE 100 tracker in the IA UK All Companies sector with an OCF of 0.51%.
