Index tracking funds (�Trackers�), which are highly popular with investors have failed investors data analyst Moneyspider.com has warned. Popular due to their low charging, index trackers, which typically shadows the performance of key indices such as the FTSE 100 Index, have not fared well as stock markets have fallen around the world.

Leading Tracker funds such as Legal & General's UK 100 Index have fallen sharply in the past 12 months - a �5,000 investment is today worth just �4,426, reflecting an 11.47 per cent* drop.

And they�re not alone. Scottish Widows' popular UK Tracker is down 13.14 per cent*: an investor putting �5,000 into the fund one year ago now has just �4,342 left from the original investment.

Virgin's hugely popular UK Index Tracker is down 14.27 per cent* over the past 12 months. A �5,000 investment in this fund would have fallen to �4,287 in the year to the end of July 2008.

But an actively managed fund can make a big difference to investment returns over a relatively short time frame - even in a market downturn.

�5,000 invested in the previously lacklustre Manek Growth - the UK All Companies' sector's best performing fund over 1 year- would have shown a return of 18.05 per cent*, i.e. �5,902 profit.

And over a five year period, the top performing Rensburg UK Mid Cap comfortably outperforms tracker rivals shadowing UK company shares, returning �10,560 on �5,000, compared to just �7,104* delivered by L&G's hugely popular UK 100 Index. And for those investors prepared to venture outside the UK the results are even more striking. �5,000 invested in the UK�s best performing fund over 5 years Neptune�s Global Alpha, would have grown to �12,820.*

But the same amount invested in the Scottish Widows Index Tracker over five years would have grown to just �7,319, a massive difference in performance.

"Index funds have long been popular with investors because they invariably have low charges due to there being little or no fund management involved," said Moneyspider.com's Tony Ahearne.

"But in this investment climate a tracker can only go one way, and that is down. There is little point paying low charges when you are being rewarded with below par performance," he added.

So why is this gap in performance currently making itself felt?

"Good active fund managers have been able to exploit the many factors contributing to the current downturn, avoiding companies exposed to the credit crunch or relying on consumer spending and instead weighting towards mining and energy stocks," said Ahearne.

A good manager, added Ahearne, will be in a position to re-position their portfolios in response to fast changing market conditions - unlike a passive tracking fund, which will follow the herd down.

"Around five million investors currently hold tracking funds, which are marketed as easy to understand, low cost investments. But in this market they are bad news, as our data reveals.

In essence an active fund manager can diversify into appropriate stocks to reflect the investment climate, which a tracker cannot do. So, at least in a well-managed fund the investor has a fighting chance. While our figures show that even the best of the actively managed funds have lost ground over the past year, over the five year period the growth has been little short of spectacular for the top actively managed funds."

"And that is the key difference between these two radically contrasting investment styles," added Ahearne. �Keeping a close eye on your fund�s performance is crucial in these uncertain times.

In rapidly changing market conditions, as we are currently experiencing, knowing how a specific fund in which you are invested is performing and � equally important � how other funds compare, is simply good financial common sense,� said Ahearne adding �Moneyspider.com has no registration fee and the service not only rates the performance of each of the client�s own funds but also shows a comparison with the top five funds in the same sectors. It also shows the top-performing funds from all sectors, so Moneyspider.com investors can see where the real profits have been.�

Tony Ahearne, Director, Moneyspider Limited.
Tony has been an Independent Financial Advisor for over 30 years. (The above article is based on the author’s understanding of the new rules and investors are advised to take their own professional advice.)"Many of our members now check their funds on a daily basis."
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