Low cost tracker funds are growing in popularity with investors, as record sales in 2011 pushed their share of the funds management industry to 6.8%, the highest level yet.
New statistics from the Investment Management Association (IMA) show that net sales of tracker funds to investors were £1.9 billion in 2011, up from £1.7 billion a year earlier.
Tracker fund investment reach record levels
There was a total of £39 billion held in tracker funds at the end of 2011; that’s the highest on record, giving them a 6.8% share of funds managed by investment companies on behalf of individuals.
Tracker funds are a simple, low cost alternative to actively managed funds. They follow the movement of an index, such as the FTSE 100, and their value falls or rises in line with that index.
Tracker funds will always slightly underperform the index, because of annual fees, although these can be as low as 0.15% per year.
UK stock markets popular tracker funds
Richard Saunders, chief executive, IMA, said: ‘2011 was a successful year for tracker funds, which saw their highest net retail sales on record. Funds tracking equity indices accounted for 8% of total equity fund sales, the highest level since 2003.’
Tracker fund sales did suffer a dip in the fourth quarter of 2011, however, standing at £341 million, the lowest level since the first quarter of 2010.
The IMA lists 81 tracker funds, 40 of which track UK indices, mainly the FTSE All Share and the FTSE 100. The rest track a variety of Global, European, Asian or US indices.
UK stock markets experience a fall
Unfortunately, the year of record tracker sales coincided with a drop in the value of the FTSE index, which would have dented the value of your money by 6%, although 2012 has begun with a period of steady growth.
It is important to take a long-term view, but also to choose carefully from the wealth of tracker funds available.
Although they are a lower cost option, some are more expensive than others and may have different charges, which can have a big impact on the value of your funds.
• Active v passive – understand the difference between the investment styles
• The impact of fund fees – are they hurting your returns?
• Call the Which? Money Helpline – if you need help with investing your money