What is a tracker fund?

You may have heard of tracker funds as a relatively low risk way to invest, but what are they exactly?

A tracker fund is a type of investment fund that aims to track the performance of a specific market index, such as the S&P 500 or the FTSE 100. Tracker funds are also known as index funds or passive funds.

Tracker funds are managed by investment professionals who use algorithms and other tools to mimic the performance of the underlying index. Unlike actively-managed funds, which are managed by professional stock pickers who try to outperform the market, tracker funds do not attempt to beat the market. Instead, they aim to match the performance of the index they are tracking as closely as possible.

Tracker funds offer investors several advantages. Because they are passively-managed, they typically have lower fees than actively-managed funds. This means that investors can keep more of their investment returns. Tracker funds are also considered to be more diversified than actively-managed funds, because they hold a broad range of stocks that are representative of the underlying index. This can help to reduce risk.

Tracker funds are typically used by investors who want to invest in a specific market but do not have the time or expertise to select individual stocks. They are also used by investors who want to build a diversified investment portfolio without paying high fees for actively-managed funds.

Tracker funds are available in a range of different markets and can be invested in through a variety of channels, including pension funds, individual savings accounts (ISAs), and direct investment. Some tracker funds are also available as exchange-traded funds (ETFs), which can be bought and sold on a stock exchange.

Overall, tracker funds are a low-cost and convenient way for investors to gain exposure to a specific market without having to select individual stocks. They are a popular choice for investors who want to build a diversified investment portfolio without paying high fees for actively-managed funds.

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