A fully flexible way to invest
3 minute read
Just because the world’s largest investment fund is a simple tracker fund, it doesn’t mean it is suitable for everybody. But for many, tracker funds are a cost-effective way of gaining exposure to some of the world’s investment markets. And while a tracker fund will not outperform the market they are tracking, they are useful investments to have at the core of a diversified investment portfolio.
Who's it for? All investors
If you add up the total value of all the companies listed on all the stock markets around the world, you will find that the US dominates. In fact, the US accounts for over half the world’s companies, by value. It’s a staggering fact, which makes you appreciate why a US investment fund has a place within a diversified portfolio.
But when it comes to investing, the first thing you need to decide is whether to invest in an active fund or a tracker fund. Active funds aim to outperform the market, by selectively choosing which companies to invest in and which companies to avoid. Tracker funds – also known as ‘passive’ funds – don’t try to beat the market. Instead, they simply try to track its performance.
These types of funds have been around since the early 1970s, and the largest investment fund in the world is a passive fund that simply tracks the US stock market. Here, we look at three reasons why you may wish to consider a tracker fund to invest in the US.
Diversification means making sure you’re not relying on one type of investment too heavily. Investing in just one company is extremely risky, because if it doesn’t perform you’ll lose money. Investing in lots of companies means that even if one does badly, others may do well, limiting your losses.
The iShares US Equity Index Fund invests in the shares of over 600 companies in the US, which represents a large part of the US stock market. However, diversifying doesn’t mean shortening the period of time you invest for. You should be thinking long term (at least five years) for all your investment allocations.
It was Benjamin Franklin who was famously quoted as saying, “There are only two certainties in life – death and taxes.” When it comes to investments, there is only one certainty – costs. As a result, keeping costs as low as possible gives your investments a kick-start. Because tracker funds are run using computer algorithms, rather than with costly research and managers, these funds are significantly cheaper than the equivalent actively managed funds. They offer an attractive cost-effective option to use as a key part of a diversified portfolio.
The tracker funds on our Funds List are selected solely on cost – those featured are simply the cheapest available tracker fund 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.
On every stock market, there will always be companies that are winning and companies that are failing. And because tracker funds track the entire market, they are also constantly changing. As the successful businesses grow, their share prices inevitably rise and the companies become larger parts of the stock market. Tracker funds will therefore track the market and these companies will become larger holdings within the funds. Likewise, if a company fails, and it falls out of the stock market, it will no longer be held in the tracker fund.
It’s important to understand that, unlike an actively managed fund, a tracker fund can never outperform the market or index it is linked to – as the name suggests, it will only ever follow it. It’s equally important to appreciate that although active funds aim to outperform the market, not all active funds achieve their goal of outperforming the market.
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.
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