Remind me what a tracker fund is

Tracker funds, also commonly referred to as index funds, attempt to replicate the holdings and performance of a given index such as the FTSE 100 and the S&P 500.

A form of collective investment, they provide investors with exposure to an entire index, typically buying the individual securities in the index they seek to replicate, allowing wide exposure via one fund. When an index rises, the value of your investment rises and when the index falls, your investment in the fund falls.

Tracking error refers to the difference between the return of a fund and the index it is trying to track. Tracking error will always exist with this type of fund because the fund manager can’t invest directly in an index; they have to physically purchase all the stocks, plus the fund’s expenses will provide a slight divergence.

Trackers are categorised as a type of passive investment because the fund manager isn’t making any active decisions about individual stocks in which to invest. As a result, management charges are typically lower than for actively managed funds, although their growth in popularity has led to more sophisticated offerings. Strategies have expanded to include indexes screened for a wide range of characteristics and fundamentals, providing for much more targeted investment.

The value of investments and income from them may go down. You may not get back the original amount invested.