FTSE 100 tracker funds have become very popular investments in recent years. This is because they offer diversified exposure to the UK stock market at an extremely low cost.
But have FTSE 100 trackers actually been good investments? Let’s take a look at how much £5,000 invested in one five years ago would be worth today.
FTSE 100 tracker returns
Two of the most popular FTSE 100 tracker funds are the HSBC FTSE 100 Index and the Legal & General UK 100 Index Trust. You can find both on the Hargreaves Lansdown platform.
Looking at the performance of the accumulation version of the HSBC fund (which reinvests dividends), it’s returned a total of -1.7% over the last five years. Meanwhile, the accumulation version of the Legal & General fund has returned a total of -0.5%. Averaging this out, you’re looking at a total return of -1.1% over the last five years.
What this means is that had you invested £5k in a FTSE 100 tracker five years ago, your investment would now be worth around £4,945. And that’s before Hargreaves Lansdown’s platform fee of 0.45% per year.
I think it’s fair to say this kind of return is quite disappointing.
Could you do better?
I realise the Footsie has been hit hard recently due to the coronavirus outbreak. So you could argue it’s not a great time to analyse the five-year performance of FTSE 100 tracker funds right now. However, I think it’s worth pointing out many other investments have performed far better over the last five years.
For example, the Legal & General International Index Trust – which tracks the FTSE World (excluding UK) Index – has returned about 45% over the last five years. That’s turned £5k into about £7.3k, excluding platform fees. And the Legal & General Global Technology Index – which tracks the global technology sector – has returned about 139%, turning £5k into nearly £12k, excluding fees.
Similarly, in the actively-managed funds space, the highly-popular Fundsmith Equity has delivered a total return of about 106% over the last five years. This means a £5k investment would now be worth more than £10k. And Lindsell Train Global Equity, another popular actively-managed fund, has returned roughly 90%, turning the same amount into around £9.5k.
Meanwhile, many individual UK stocks that aren’t in the FTSE 100 have also generated brilliant returns for investors over the last five years. For example, online fashion retailer Boohoo has risen approximately 820% over the last half-decade, turning £5k into roughly £46k. And video game specialist Keywords Studios has risen about 830%, turning £5k into about £47k.
It pays to diversify
Ultimately, the key takeaway here is it can pay to diversify your investments. Instead of just owning a FTSE 100 tracker, it could be a good idea to build a more diverse portfolio. Look for exposure to both international stocks and high-quality UK companies outside the FTSE 100 as well as inside it. This approach could give you a better overall chance of generating strong long-term returns from the stock market.
If you’re interested in learning more about how to beat the FTSE 100, you’ll find plenty of information right here at The Motley Fool.