July 31, 2014

Tracker Fund Explained

A tracker fund gives you cheap and easy exposure to the stock market. Tracker funds replicate the performance of a stock market index such as the FTSE 100. Therefore if the FTSE 100 goes up, then the value of your investment goes up. Contrastingly, if the FTSE 100 goes ‘down’, then the value of your investment will go down. One of the major benefits of a tracker fund is that the associated charges are typically lower than actively managed funds because there is far less analysis and research required.

However, the simplicity of tracker funds can also be viewed as a ‘disadvantage’. For example, a large percentage of the FTSE 100 index is made up of a few stocks such as BP and HSBC. Therefore if these stocks fail to perform in the markets, then your investment won’t grow.