The recent record losses of Vodafone should focus investors' minds on the dangers of FTSE trackers and other heavily benchmarked funds, financial experts say.
At first glance, trackers can seem an ideal way to invest in the stock market because few UK equity funds manage consistently to beat the FTSE All Share Index.
Investment Management Association research shows that in rolling three year periods over the last 20 years, only 35 percent of actively managed funds, on average, manage to beat the All Share Index. Over the last three years the figure is 44 percent.
But investing in those funds which do manage to beat the Index longer term can be significantly more rewarding.
Over the last 10 years the top 20 funds in the UK All Companies sector, on average, turned 100 pounds into 349 which compares favourably to the FTSE All Share at 208 pounds.
The bottom 20 funds in the sector returned 141 pounds on average, showing the importance of picking winners rather than losers when choosing actively managed funds.
The problem with tracker funds is that the FTSE, especially the FTSE 100, is overwhelmingly slanted towards the corporate giants such as Vodafone, so investors in tracker funds are inevitably having their investments skewed and are not getting sufficient diversity for their money. Adviser Justin Modray at BestInvest said it was an issue that investors continually failed to address.
"I think most investors are blissfully ignorant that the FTSE Indices are weighted, so are unaware of the increasingly concentrated nature of the FTSE All Share Index," he said.
The largest 10 companies comprise around 45 percent of the Index and the oil & gas, banks & financials and telecommunications sectors dominate it, so price movements in these shares or sectors can have a significant impact on the value of tracker funds.