The word is spreading. Tracker funds are the best way to invest in the stock market.
We’ve said many times that tracker funds – also known as index trackers – are the best way to invest in the stock market. That’s because most tracker funds have low charges and outperform the majority of other funds. You can read more about how trackers work in All you need to know about index trackers.
So I’m delighted to see that sales of tracker funds reached a new record high in the first three months of this year. Net sales rose to £43.3 billion, up 7% from the same period last year, according to the Investment Management Association.
These figures suggest that more and more people are investing their stocks and shares ISA allowance in tracker funds, which is great news.
Here are the figures in more detail:
|
Funds under management |
Q1 2012 |
Q1 2011 |
% increase/decrease |
|
Tracker funds |
£43.3 billion |
£40.3 billion |
7% |
|
Funds of funds |
£64.2 billion |
£58.8 billion |
9% |
|
Ethical funds |
£7.2 bilion |
- |
- |
|
All funds |
£613.2 billion |
£593.2 billion |
3% |
The really pleasing thing is that sales of tracker funds are growing more quickly than sales for all funds.
Bad news
However, the figures aren’t 100% good news. I’m disappointed to see that sales of ‘funds-of-funds’ are also rising fast – up 9% from the same period last year.
The rationale for funds-of-funds is that they make it easy for you to invest in a very broad portfolio.
Funds-of-funds are managed by highly paid ‘fund pickers’ who choose what they think are the best investment funds on the market. Trouble is, the fund-pickers tend to choose funds that are also run by expensive fund managers, so investors end up paying for two layers of expensive fund managers.
Whereas with a tracker fund, you’re only paying for a computer to pick some shares for you. That’s why the charges are so much lower. And remember tracker funds normally perform better than the majority of funds that are managed by expensive City suits.
What next?
If you’re tempted to start investing in a tracker fund, this article tells you which are the four cheapest trackers on the UK market.
And if you’re still not convinced that tracker funds are the best way to invest, take a look at Six great reasons to pick an index tracker.
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