Tracker funds – benefits and risks

Tracker funds are a generally low cost way to invest. These passive funds are set up to mirror the performance of a chosen Index – such as the FTSE 100 – rather than be actively managed by a fund manager. 

This means more of your money can be put to work in the market.

What are the benefits and risks?

 Low cost

 Tracker funds do not need the support of a large research team, as their managers won’t be searching for investment opportunities. As a result, trackers tend to cost less than active funds.

 Broad access

Trackers will normally invest in most or all of the companies or stocks of their chosen index, so you will have access to a broad range of opportunities.

 Tracking difference

Even after charges are taken into account, most trackers will not follow an index perfectly. The gap between a tracker’s performance and the returns from an index is called tracking difference.

 Potential over-exposure to just a few companies

Some indices are dominated by just a few stocks or companies. Buying a tracker means you are mirroring this exposure, so if one of these stocks or companies struggles, it could have a significant effect on your investment.

 Falling markets

Trackers aim to follow the performance of an index. This means that in difficult conditions when the index falls in value, a tracker will follow it down.

The FTSE All-Share Index is calculated by FTSE International Limited. FTSE International Limited does not sponsor, endorse or promote this product. All copyright in the index values and constituent list vests in FTSE International Limited. Fidelity Investments has obtained full licence from FTSE International Limited to use such copyright in the creation of this product. ”FTSE®”and "Footsie®" are trade marks jointly owned by the London Stock Exchange Plc and The Financial Times Limited and are used by FTSE International Limited under licence. “All-Share™” is a trade mark of FTSE International Limited.

Important infomation

The value of investments can go down as well as up, so you may not get back what you invest. Investments in small and emerging markets can be more volatile than other overseas markets. These investments may be subject to currency fluctuations. Fidelity Personal Investing only provides information and guidance on products and services and does not give advice. If you are unsure of the suitability of an investment, please contact an authorised financial adviser.