Question
What will be the significance of the new 'smart trackers'?
Does the Schroder QEP US Core Fund fit into this category? And finally, if there is a future for these, what form will they take: fund or E.T.F?Answer
So-called 'smart' trackers sit somewhere between conventional tracker funds (which simply aim to mirror a specific index) and actively managed funds (where the manager aims to use their skill to beat the index).
The potential issue with conventional trackers is that many of the indices they track are 'weighted', that is larger companies dominate the index. So your money may largely be invested in just a few companies. There is also an argument that companies enter an index when they are expensive and fall out of an index when they are cheap, meaning trackers buy high and sell low.
Nevertheless, trackers tend to consistently perform better than many actively managed funds, suggesting the majority of fund managers are just not that good at their job and/or don't do enough to compensate for high charges.
Smart tracker type funds tend to take an index as a starting point but add some extra criteria on top. For example, they might select stocks based on dividend yields. In theory this sounds quite nifty, but in practice they might end up doing better or worse than conventional trackers, much like actively managed funds. Success depends on the criteria used, charges and how the technique fares in the market overall - selecting stocks based on dividend yield may do well when markets struggle, but lag when markets post strong gains.
The Schroder QEP fund range uses a lot of number crunching (called ' quantitative analysis') to select stocks from a wide universe, rather than the traditional hands on analysis approach used by many active managers. I wouldn't call these funds smart trackers as such since they don't tend to use an index as a starting point, they're more actively managed funds run by complex computer algorithms.
I think there is a future for funds using quantitative management techniques (although it’s not new, some have been around for years), but as with all actively managed funds there will be those that succeed and those that don't, based on the quality of their algorithms and market climate. The key, as ever, is not to place all bets on one investment technique.
As for funds or ETFs, we've already seen smart tracker type funds emerge in both and I'd expect that to continue, albeit ETFs are probably the more natural home if managers want to attract larger investors.
What will be the significance of the new 'smart trackers'?
Does the Schroder QEP US Core Fund fit into this category? And finally, if there is a future for these, what form will they take: fund or E.T.F?Answer
So-called 'smart' trackers sit somewhere between conventional tracker funds (which simply aim to mirror a specific index) and actively managed funds (where the manager aims to use their skill to beat the index).
The potential issue with conventional trackers is that many of the indices they track are 'weighted', that is larger companies dominate the index. So your money may largely be invested in just a few companies. There is also an argument that companies enter an index when they are expensive and fall out of an index when they are cheap, meaning trackers buy high and sell low.
Nevertheless, trackers tend to consistently perform better than many actively managed funds, suggesting the majority of fund managers are just not that good at their job and/or don't do enough to compensate for high charges.
Smart tracker type funds tend to take an index as a starting point but add some extra criteria on top. For example, they might select stocks based on dividend yields. In theory this sounds quite nifty, but in practice they might end up doing better or worse than conventional trackers, much like actively managed funds. Success depends on the criteria used, charges and how the technique fares in the market overall - selecting stocks based on dividend yield may do well when markets struggle, but lag when markets post strong gains.
The Schroder QEP fund range uses a lot of number crunching (called ' quantitative analysis') to select stocks from a wide universe, rather than the traditional hands on analysis approach used by many active managers. I wouldn't call these funds smart trackers as such since they don't tend to use an index as a starting point, they're more actively managed funds run by complex computer algorithms.
I think there is a future for funds using quantitative management techniques (although it’s not new, some have been around for years), but as with all actively managed funds there will be those that succeed and those that don't, based on the quality of their algorithms and market climate. The key, as ever, is not to place all bets on one investment technique.
As for funds or ETFs, we've already seen smart tracker type funds emerge in both and I'd expect that to continue, albeit ETFs are probably the more natural home if managers want to attract larger investors.
Read this Q and A at http://www.candidmoney.com/askjustin/905/are-smart-trackers-worth-considering
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