‘Buy the haystack’: how tracker funds beat searching for shares

Tracker funds have been around for about half a century, providing investors with access to a range of assets without them having to make difficult and risky decisions. Built to follow the fortunes of a given financial market index, trackers do not need management teams, which means they generally come with low charges. If you have a workplace pension, you probably already invested in one without realising it. If you want to start investing, you are likely to be directed towards a tracker fund. No fund manager required Tracker funds are a kind of investment fund. These are pooled investments that use investors’ money to buy into a range of different assets, including shares in companies and government bonds. There are two main types of fund, passive and actively managed. Trackers are passive funds. They follow the performance of an index – for example, the FTSE 100 or S&P 500. When the shares in the index rise in value, so does the value of your investment; when they fall, it falls, too. In contrast, with actively managed funds, decisions on buying and selling assets are researched and made by a fund manager and their team, and they will be trying to beat the performance of a chosen benchmark. According to AJ Bell’s latest Manager versus Machine report , which compares the performance of actively managed funds with that of their tracker counterparts, trackers frequently provide better returns. …