Index goes up, but tracker goes down

[SimonGA]

Hi

A quick (and possibly stupid) question. If you have a few trackers than claim to track, say, one of the FTSE indexes, and all the FTSE indexes go up +1%, why would all the trackers go down?

Today is a perfect example. I feel like I’m missing something fairly fundamental about how they work!

[absolutezero]

Hi

A quick (and possibly stupid) question. If you have a few trackers than claim to track, say, one of the FTSE indexes, and all the FTSE indexes go up +1%, why would all the trackers go down?

Today is a perfect example. I feel like I’m missing something fairly fundamental about how they work!

Because you are looking at it on a day to day basis and it doesn't track on a daily basis.
Come back in a month.

[SimonGA]

Okay that’s useful to know thanks. However it’s strange that the price changes at the end of each day…

[Lootman]

Okay that’s useful to know thanks. However it’s strange that the price changes at the end of each day…

Is this an ETF or an open-ended tracker? The former is real-time but the latter reprices only once a day.

[SimonGA]

Okay that’s useful to know thanks. However it’s strange that the price changes at the end of each day…

Is this an ETF or an open-ended tracker? The former is real-time but the latter reprices only once a day.

The latter…

[GeoffF100]

Give us a specific example, when we still have intraday data. The pricing point may not coincide with the end of trading. Swing pricing will also affect the price. (Swing pricing ensures that the people entering and leaving pay the cost of that, rather than long term investors in the fund.)

[SimonGA]

Give us a specific example, when we still have intraday data. The pricing point may not coincide with the end of trading. Swing pricing will also affect the price. (Swing pricing ensures that the people entering and leaving pay the cost of that, rather than long term investors in the fund.)

An example may be something like this https://markets.ft.com/data/funds/tears ... X7SS90:GBP

It’s supposed to track the FTSE All-Share Index (which is up 1.22% today), but is down 0.4%

There are also some that don’t specifically call themselves trackers, but in their description say that they should generate returns consistent with X index, such as this https://markets.ft.com/data/funds/tears ... 674408:GBP

Perhaps all of these are just a ‘sample’ of equities in the index, and it just happens that today all the indexes they were supposed to be ‘equivalent to’ went up, but they went down?

[TedSwippet]

An example may be something like this https://markets.ft.com/data/funds/tears ... X7SS90:GBP

Funds price once per day. Often at noon.

The fund you linked to is not a FTSE all-share tracker, but it is currently at 85% UK stock, so a look at UK stock indexes will give you a solid clue about what is happening. Your fund probably priced at 12:00 (I'm too lazy to dig through the prospectus to confirm this). If you look at the FTSE all-share index, you can see it was at 4139.59 at 12:00 yesterday, and 4122.71 at 12:00 today. The difference is -16.88. This is a 0.41% drop across these two points, and almost exactly matches the 0.4% drop shown on the page you linked (that page is showing you the difference across two fund price points; specifically, yesterday's and today's).

Also visible in the FTSE all-share index graph for today is that the majority of the index gains came after 12:00. You will see these gains reflected in tomorrow's 12:00 fund price point. Plus, of course, whatever happens between tomorrow's market open and 12:00.

TL;DR -- A index's daily percentage change covers a period from market open to market close. A fund's or OEIC's daily percentage change covers a period across two price points, typically from 12:00 on one day to 12:00 the next. Because of the timing offset these will almost always be different percentages. Sometimes wildly different.

[SimonGA]

An example may be something like this https://markets.ft.com/data/funds/tears ... X7SS90:GBP

Funds price once per day. Often at noon.

The fund you linked to is not a FTSE all-share tracker, but it is currently at 85% UK stock, so a look at UK stock indexes will give you a solid clue about what is happening. Your fund probably priced at 12:00 (I'm too lazy to dig through the prospectus to confirm this). If you look at the FTSE all-share index, you can see it was at 4139.59 at 12:00 yesterday, and 4122.71 at 12:00 today. The difference is -16.88. This is a 0.41% drop across these two points, and almost exactly matches the 0.4% drop shown on the page you linked (that page is showing you the difference across two fund price points; specifically, yesterday's and today's).

Also visible in the FTSE all-share index graph for today is that the majority of the index gains came after 12:00. You will see these gains reflected in tomorrow's 12:00 fund price point. Plus, of course, whatever happens between tomorrow's market open and 12:00.

Aha! The strange thing is that all the platforms I looked at always update the price at around 8pm. I hadn’t imagined the ‘end of day price’ could be from midday

Of course I shouldn’t be checking pension funds daily, but I’m trying to tweak my pension portfolio to add more free funds. I can’t find a decent tool to track Aviva funds over time, so the daily numbers just give me a very rough sanity spot check in relation to the equivalent managed funds.

Thank you.

[Gerry557]

There is usually a tracking error to account for too but more likely to see its effect over time than just one day

[GeoffF100]

There is usually a tracking error to account for too but more likely to see its effect over time than just one day

Not necessarily.

(1). Assume that there are only sellers of the fund on Monday. The cost to the fund of selling the underlying stock will be the spread plus the dealing commission. The price of the fund will be reduced by that amount to cover the costs of redeeming the units.

(2). Assume that there are only buyers of the fund on Wednesday. The cost to the fund of buying the underlying stock will be the stamp duty, spread and the dealing commission. The price of the fund will be increased by that amount to cover the costs of creating the new units.

[Gerry557]

That doesn't take into account "how" it replicates the index.

[GeoffF100]

That doesn't take into account "how" it replicates the index.

That matters over a longer period of time, but we are talking about one day changes here. My point is that the price of a fund can change by 1% or so from one day to the next for some funds even if there is no movement at all in the index. That is the result of swing pricing, irrespective of the replication method. Over a longer period of time, it also matters how the index is compiled. Some indexes are specifically designed to be cheap to track, others are not.

[GeoffF100]

Perhaps I should add that the cost of creating and redeeming units, and the resultant size of the swing may depend on the replication method. Nonetheless, swing pricing aims to ensure that investors buying a selling units bear those costs, rather than long term investors. Vanguard is particularly keen on that. There are issues with swing pricing, and Vanguard was reportedly very reluctant introduce single pricing in Europe. It gave up on dilution levies in Europe because of the difficulty of getting over the message that they were paid directly into the fund and were not a "charge", and because many European platforms did not support dual pricing.