MONEY COMMENT
Be Choosy With Your Tracker

By Jane Mack (TMFJane)
July 4, 2003

Company reports don't do anything for me. This is hardly surprising as I have no head whatsoever for figures and company reports are full of 'em.

It doesn't stop me from investing in the stock market though. It's just that I do it through an index tracker rather than picking and choosing individual shares. It's the lazy person's way of investing and it's also the cheapest.

However, just because trackers are easy, there are still a few things to consider when choosing one.

For example, don't pay more than 1% in charges. In fact, there are several around which only charge about 0.5% so why on earth pay more? And if there's an initial fee involved then give it a wide berth.

Equally, although the job of a tracker is to mimic the performance of an index, it is impossible in practice to reproduce it. In the real world there are costs so a good index tracker will follow the index closely but should slightly underperform it. If it doesn't then it's not doing a very good job of mimicking the index terribly well. So always ask about the tracking error to make sure it's closely tracking its benchmark.

And finally, don't be overly adventurous with your choice of index. Most UK trackers follow the FTSE 100 or the FTSE All Share which cover shares listed on the London Stock Exchange. You could go for a US, European or even a Japanese one so you've got an international spread but arguably you don't need to. Apart from the fact that they're usually a bit more expensive, many of the biggest companies in the UK make profits from abroad anyway so you won't be missing out on an international flavour.

Find out more in our Index Tracking Centre.