why do my investment values follow FTSE?

[itinerants]

I have modest capital invested in various international funds with several of the UK's major players in the market. As part of keeping tabs, I check values fortnightly.

In the past couple of years, I've noticed that the values of my investments tend to follow the FTSE. If the FTSE goes up, my investments increase in value. If it goes down, I'm worth less on paper.

I can't see any logic for such fluctuations. Obviously investments can go up or down according to effectiveness of financial management, but surely in a well-managed fund, what the FTSE does should have little bearing on the actual values of the funds invested? The recession has no bearing on the issue - what was lost is lost, but now recovery is on the way (?) surely fund managers should be using their expertise to 'play' the market whatever FTSE is doing?

Perhaps I'm being naive, but I suspect financial institutions are looking for easy sinecures rather than working to increase values of investments.

Has anyone else noticed this - or am I simply with the wrong people?

[dasherman]

I've got various stock based investments, none that are in trackers of the FTSE or any other index, and mine like most people's also go up and down with stock market whims. Obviously there's always going to be excepections, but in general, if one fund does well then a lot will follow because a lot of funds hold stocks in similar companies. The same obviously applies when prices reduce.

Although whether a fund out or under performs a particular index depends on what stock it holds and the type of fund it is, such as an 'absolute' fund which is supposed to go up when markets go down.

Personally, the last two years have been great, the 'losses' have been regained and the money I invested in March 2009 has done very well, so there has most definately been a recovery, the increase in the FTSE will tell you that!

Stock market investing is a long term thing, it's not necesarily important what happens over a 2-3 year term, but over 20-30 years, as funds can hold stock for many years.

[itinerants]

Thanks dasherman - I understand all you're saying and can't disagree. However, if I produce comparisons between fluctuations in my funds and the FTSE, I would produce a correlation factor very close to 1.

As far as I can see the only reason for this phenomenon is if the funds themselves are being traded as commodities in the same way as equities. But I know this is not the case - nobody would invest in them if so. And I reiterate that in my view an effective fund manager should be able to take advantage of market movements and still make money.

My financial adviser tells me 'that's what funds do" which to me is a response suggesting he doesn't know what the answer is, like a doctor saying "it's just one of those things."

Perhaps a better question for me to ask is "how do managers calculate the values of funds?" The values change daily. I have a sneaking feeling that most fund managers simply look at the FTSE and say "knock it down by 0.5%." That's not good financial management.

I remain sceptical.

[DocHH]

Hello itinerants,
I think you need to look at the aims/mission statement of the funds you hold. Some funds claim to be FTSE Tracker funds, they will hold stock in Companies in the FTSE in the appropriate proportions that as the FTSE varies the fund value follows it both up and down. Other funds such as Framlington Health will only hold stock in Companies that are in the Health Sector, other funds may be income based and will hold stock in Companies with high dividend yield, but possibly with low share price increase, eg Jupiter High Income, where you might need to reinvest income to achieve capital growth. Guess which sort of Company that Fidelity invest your money in if you opt for "Fidelity American", or if you opt for "Jupiter Ecology"? You should get reports annually, perhaps even bi-annually that show stock holdings by %age, and change in those holdings, plus a valuation, plus statement of income for the period, and if you have opted for reinvestment of income how many units have been purchased.
If you have a look in the Daily Telegraph Business section you will see just a small cross section of funds available, all of which will have defined aims and hold stock in companies that reflect those aims.

Assuming your Financial adviser is totally independant, viz, can recommend any of the funds available from any fund manager, rather than tied to only selling his own employers funds, then you should have been through a full interview to establish your attitude to risk and your attitude to where the funds are invested, . Only then should the FA have suggested where you should invest, and that recommendation should have included a wide range of investments. Your comments seem to indicate your FA is not an Independent FA. There are IFA's who operate on an execution-only basis, ie, claim not to give advice, but do tend to issue bi-annual reports on markets, but leave it to you decide where to invest. Seymour Sinclair are one

[dasherman]

Fund values are based on the value of the shares, cash, etc they hold and so they obviously flutuate with the markets.

But I still think you're looking at things on a far too short term point of view. Fund managers don't necesarily trade stock on a daily basis as they probably don't know what's going to happen to any particular company anymore than the rest of us. They look at businesses that are expected to perform well over the long term and then invest for the long term - daily, weekly, monthly, even yearly flutuations are all part of that.