Smart Money: Buying Into FTSE 100 Tracker

September 27, 2017

More and more people are moving into investments in low-cost “passive” funds that buy shares in proportions that mirror the make-up of the stock market. Still with me? Ok...it took me a few read throughs to work it out too. The popularity of trackers has boomed in recent years, with the London Stock Exchange revealing there are now 300,000 trades a month for these funds, compared to about 10,000 a decade ago.

FTSE 100 Trackers are a cheap, easy and attractive investment option for those who don't want to put all there money on a single stock or share. From as little as £100 you can buy into one of these investment funds, a typical tracker fund will buy into every company in the FTSE 100, and will invest the money according to how much of the index that company makes up. This means the larger the company, the more of your money will be invested in it.

 

Where Does Your Money Go?

The most common trackers available to British investors, mimics the movement of FTSE 100. The leading market of the largest UK companies.

 

Depending on how stocks have fluctuated each day, your portfolio will look slightly different. However, this is a typical breakdown of what you will get in todays climate: 

 

If you invested £100 with a FTSE 100 tracker today, almost half of your money will go into 12 stocks: meaning the largest 12 companies account for £49.50 of your cash. In contrast, the remaining £50.50 will be spread between 88 companies. As you can see there is a trend here and investors might be disappointed to see that their money is being invested in just a few types of business. Mainly Oil, tobacco and finance. 

 

So if you want exciting areas like emergent technology, then you are going to need to look elsewhere as tech based companies make up less than 1% of the FTSE 100 index. 

 

 

Who Is The Ideal Investor? 

Tracker funds are ideal for those who want to invest but don't want or have the nose for selecting profitable shares and want to avoid the often hefty costs using a traditional active fund manager involves.

 

These funds put aside the concept of trying to hand-pick a selection of shares to beat the market and are instead designed to follow a set index, namely the FTSE 100.

 

These funds can keep costs ultra-low and while they won't beat the market neither should they fall far behind it - the idea instead is that slow and steady investing wins the race.

 

How To Buy In And Who To Chose?

Your average high-street bank will set this up for you. If you have online banking, the"investments" tab will have options for purchasing shares and funds. Here are our top picks and including dealing fees and annual platform charges.

 

Top Pick FTSE 100 Trackers:

Blackrock 100 UK Equity Fund - 0.07 per cent 

Legal & General UK 100 Index - 0.10 per cent (0.06 per cent through Hargreaves Lansdown) 

BlackRock 100 UK Equity Tracker - 0.16 per cent

HSBC FTSE 100 Index - 0.17 per cent

 

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