A leading stock watcher has warned against investment in one of the most popular types of share funds.

Stock market statistician David Schwartz, who had cautioned that shares were overvalued before the recent market meltdown, has said that so-called tracker funds are likely to offer poor returns over the next decade.

David Schwartz: "Market is not going anywhere"

Tracker funds, which typically aim to match the performance of the benchmark FTSE 100 shares index, have become one of the most popular investment tools, accounting for some 15% of all cash held in UK investment and pension funds.

But while they performed strongly during the bull market of the late 1990s, such funds are to suffer from the current dismal period for shares, Mr Schwartz said.

Shares to struggle

Analysis of historical data shows that strong market runs are followed by periods where indexes mark time.

"When markets outperform by a drastic amount over any 15-year period, they lose money in the next 15," Mr Schwartz told BBC News Online.

"There has never been an exception, in any index, in any country, nor in any century.

"The index investor may perform in step with the market, but the market is not going anywhere for the next decade, if I have got it right," Mr Schwartz told BBC News Online.

Limited scope

Mr Schwartz's prediction is backed by research from London Business School, which said that shares would not reach their 2000 peaks for another 11 years.

And Apcims, the trade group for stockbrokers and fund managers handling private portfolios, backed an active investment approach.

"In a falling market, you can transfer some of your funds from shares to gilts, or cash, when they are being actively managed," Apcims spokesman Brian Mairs said.

"With a tracker fund you are stuck with the index."

Tracker fund investors were also typically denied access to smaller firms, which can produce better returns, he added.

The FTSE 250 index, which measures the performance of shares in second ranking firms, has fallen by 35% from its peak, compared with 43% for the FTSE 100.

Extra fees

But M&G, the investment arm of insurance giant Prudential, said the tracker warning ignored the risks inherent in active fund management.

"Yes you may get better returns from funds which select their stocks," M&G's head of global analysis, John Hatherly, said.

"But the key word is select. Many funds are going to pick stocks which underperform the market."

Actively managed funds also tended to charge more than the 0.3% M&G takes in tracker fund investment fees.

"That difference mounts up over the years," he said.

The extra fees charged by actively managed funds were highlighted two weeks ago in a government commissioned review by insurance chief Ron Sandler.

'Real value'

Mr Hatherly urged investors not to lose faith in shares, despite recent falls.

"What you are now beginning to see is the emergence of real value in the market," he said.

"You can choose a decent portfolio of shares where the yield is in excess of 4%, and in excess of that from government bonds.

"I don't know when the market is going to turn. There may be another leg down yet to come.

"But the bullish argument is that if you take a long term view.... you should consider putting at least some of your money in shares."