A fully flexible way to invest
3 minute read
The London Stock Exchange is one of the world’s oldest stock exchanges and can trace its history back more than 300 years. And throughout the centuries, investors have sought out the most attractive companies to invest in. However, a simple route is to just invest in all of the largest companies. In the UK, that is usually the FTSE 100.
Who's it for? All investors
When was the last time you went to the supermarket and bought everything? Never. What a ridiculous thing to do! We visit the supermarket with a shopping list. We know what we want to buy and (usually) just buy those items. But when it comes to investing, we are rarely that sure. So, if we don’t know what to buy, should we simply buy everything?
Actually, that’s not such a bad idea. Buying the whole market is not a new idea. The concept originated back in the early 1970s, when banks in the US created a means by which their institutional clients could invest in a product that was designed to deliver similar returns to that of the market. Fast forward 50 years and we know these products as tracker funds (also known as index trackers or passive funds). They are a cost-efficient way that you and I can ‘buy the market’.
A tracker fund slavishly tracks the performance of a particular market or part of the market. The iShares 100 UK Equity Index Fund, for example, is designed to track the FTSE 100 index, which represents the 100 largest companies listed on the London Stock Exchange.
The fund will hold all 100 companies that make up the FTSE 100 Index, and will automatically adjust those holdings daily to ensure it always looks the same as the index, and hence performs the same. Crucially, most passive funds are operated automatically rather than by a fund manager, which dramatically reduces their running costs.
The argument for and against buying tracker funds comes down to costs versus performance. Critics of passive investing say funds that simply track an index will always underperform the market when costs are taken into account. In contrast, active managers can potentially deliver market-beating returns by carefully choosing the stocks they hold.
But supporters of passive investing argue that many active fund managers fail to consistently beat the market over the longer term. And trying to pick the ones who will is extremely difficult, as a manager’s past performance should never be viewed as an indication of their future returns.
Essentially, the debate centres on whether it’s worth paying the higher costs levied by active fund managers or whether you’re more likely to enjoy greater rewards in the long run by sticking to cheaper passive products. One of our principles of investing is that you should only move away from passive investments if you have good reason and fully understand the total cost incurred.
If you have made the decision to invest in the shares of UK companies, but are unsure which active fund to invest in, the iShares 100 UK Equity Fund could be worth considering. The FTSE 100 Index, commonly known as the ‘footsie’, is the most widely quoted measure of the UK stock market, and is often considered a good indicator as to the health of the UK economy. It gives a broad exposure to the largest companies in the UK.
If passive funds appeal to you, you may wish to look at the tracker funds in the Barclays Funds List. We have selected 12 tracker funds which allow you to track the performance of different investment sectors at a low cost. Find out more information on these funds.
The tracker funds on our Funds List are selected solely on cost – those featured are simply the cheapest available tracker funds we offer in each sector where a relevant product is available. The funds included in this selection are reviewed every six months, in June and December.
Correct at the time of publishing.
To diversify your investment, you may like to consider our own Barclays Ready-made Investments (RMI). The RMI are just one example of a range of diversified funds which allow you to select the level of risk you are most comfortable with. These Barclays multi-asset funds invest in passive funds across a range of asset classes and regions, offering a globally diversified solution for investors. Ready-made Investments are not the only funds that we offer and they won’t be appropriate for everyone.
Past performance of the fund and its manager are not a reliable indicator of their future performance.
We don’t offer personal investment advice so if you’re unsure you should seek that independently.
Funds are designed for the long term so you should only consider them if you can stay invested for at least five years.
These are our current opinions but the future, as ever, is uncertain and outcomes may differ.
Read the Assessment of Value report [PDF, 3.2MB] for funds run by Barclays.
The value of investments can fall as well as rise. You may get back less than you invest. Tax rules can change and their effects on you will depend on your individual circumstances.
A fully flexible way to invest
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