Do ETF trackers suck?

My wife wanted to get started with investing so I suggested she try an S&P 500 tracker. She chose iShares S&P 500 (CSP1) 2 weeks back, and looking at the performance now we can see the ETF is not performing as expected.

Here is the performance of the ETF (on 15th July 2023)
last year +7.52%
last month -0.24%

Here is the performance of the S&P 500:
last year +16.63%
last month +1.80%

The ETF is doing a terrible job of tracking the index over long and short time period. Firstly, does anyone know why they diverge so much? And secondly, assuming this is a function of the nature of ETFs, do ETF trackers just suck?

Comparing them both in the same currency?

Your tracking after 2 weeks of investing? :sob:

Hopefully this image can answer your question.

You have currency risk in your ETF. Which is fine by the way!

But more importantly before investing please do your research so that you avoid surprises like this. Nothing has gone wrong :slight_smile:

Thanks Ted and Josh, the fund is valued in GPX so yes, the discrepancy is the change in GBP-USD exchange. Given the relative volatility of the pound in the last 9 months we might look at a hedged fund instead.

1 Like

Celia, my wife comes from a family who have no savings. She is 40, has no investments (until 2 weeks ago), no pension and no savings other than what’s in her bank account. She’s very nervous about investing and has read a couple of books to educate herself before getting started. I’m sorry that she didn’t live up to your expectations of not looking at her first ever investment for months or years on end.

1 Like

It’s exciting that your wife has now started her investment journey Stuart.
We have walked a similar path.

Welcome Stuart and wife. Perhaps a savings account instead/in addition to your ETF might be a consideration.
Take a look at justetf…com for some impartial information.

Stuart, I wasn’t meaning to be rude :blush: I can’t comment on that particular ETF - But I can suggest that you maybe add a small allocation of her portfolio to CSH2 money market fund.

I’ve done this with my other half who is also new to investing & it reassuringly stays in the green whilst his All World tracker fluctuates. Less worry :blush:

Good luck :+1:

CSH2 isn’t really investing - it’s a ‘bank deposit’ savings equivalent that will roughly track Bk of England interest rate, but with (low) default risk. It’s not a bad option whilst interest rates are relatively high - but if rates fall again then returns on CSH2 will reduce quickly

It might not count as “investing” in your eyes, but the returns are more predictable and consistent then dividend investing for example, where most ETFs bring in a return of just 2-4%.

And unlike putting money into a Cash ISA, the returns from CSH2 are immediately changing if the BoE rate changes - in both directions. So ATM this is a better investment in my eye then many of the stock/dividend ETFs. But of course YMMV.

2 Likes

Don’t get me wrong - I have exposure to CSH2, I like it as a proxy to a savings account - but it’s more equivalent to a savings product than an investment product

True. The beauty of it is that one can always mix and match from inside an S&S ISA without the hassle of moving funds between an Cash ISA and a S&S ISA.

1 Like