20 top tracker funds for new investors
28th July 2016 14:31
by Moira O'Neill from interactive investor
When you start investing, choosing from thousands of funds can seem very daunting. To make your choice easier, Moira O'Neill, editor of our sister magazine Moneywise, has picked her 50 favourite funds for beginners. Whether you're looking for passive or active funds, she has options to suit you.
The full list features index-tracking funds, actively managed funds and investment trusts, beginning here with her 20 choices of tracker funds. The remaining 30 will be published on Interactive Investor next week.
How to buy funds
Index tracker funds are low cost and can be used to build a solid core for your portfolio. They are also known as "passive funds" because they simply aim to replicate performance of a benchmark index, rather than trying to actively buy and sell stocks and shares to boost performance. If you use trackers, you'll never beat the index - but you also reduce the risk of performing worse than the index.
Active funds have the potential to perform better than index trackers, but there is the risk that the fund manager may make the wrong decision. Many investors build a core of low-cost passive funds and then add active funds as "satellites" around this to try to add value.
Many of these funds have income and accumulation units, and you will need to buy the right version for your investment needs.
With income units, shown as "Inc" in the fund name, any income is paid as cash. This can be withdrawn, reinvested or simply held on your account. With accumulation units, shown as "Acc" in the fund name, any income is retained within the fund; the number of units remains the same, but the price of each unit increases by the amount of income generated within the fund.
Generally, accumulation units offer a slightly more efficient way to reinvest income, although many investors will choose to hold income units and reinvest the income to buy extra units.
We have included the ISIN identifier for each fund - this is a unique number that will help you identify it on the investment platform that you use.
The ongoing charges figure, or OCF, is the most accurate measure available of what it costs to invest in a fund. The OCF is made up of the annual management charge (AMC) levied by the fund managers and other operating costs.
Note that you may have to pay an investment platform fee on top of this, depending on which platform you use to buy the funds.
The first 20: Passive funds for core holdings
Index tracker funds are low cost and can be used to build a solid core for your portfolio.
They are also known as "passive funds" because they simply aim to replicate performance of a benchmark index, rather than (like active funds) trying to beat the index.
We have picked out our favourite 20 tracker funds across a range of different asset classes.
Instant portfolios
Vanguard LifeStrategy 20% Equity Inc or
A low-risk fund that provides some upside potential from investing while limiting the risk of losing your money, it has 20% exposure to globally diversified equities with the remainder in globally diversified government and corporate bonds. The underlying portfolios are wholly made up of Vanguard index tracker funds. For a bit more risk, use the 40% equity version.
OCF: 0.24%
ISIN - Inc: GB00B4620290
ACC: GB00B4NXY349
Vanguard LifeStrategy 60% Equity Fund
orThis instant medium-risk portfolio has 60% exposure to globally diversified shares with the rest in globally diversified government and corporate bonds.
OCF: 0.24%
ISIN - Inc: GB00B4R2F348
Acc: GB00B3TYHH97
Vanguard LifeStrategy 100% Equity Fund
orThis one-stop fund is aimed at higher-risk investors, who don't want to think about how to put a portfolio together. The main stockmarket exposure is to US shares, followed by UK shares. To reduce risk, go for the 80% version.
OCF: 0.24%
ISIN - Inc: GB00B545NX97
Acc: GB00B41XG308
UK shares
BlackRock 100 UK Equity Fund D
By tracking performance of the FTSE 100 Index of the biggest companies traded on the London Stock Exchange, it seeks to achieve capital growth.
OCF: 0.06%
ISIN: GB00B7W4GQ69
Fidelity Index UK Fund W
orIt aims to replicate performance of the FTSE All Share Index. This index represents 98% of companies traded on the London Stock Exchange.
OCF: 0.08%
ISIN - Inc: GB00BP8RY721
Acc: GB00BLT1YM08
HSBC FTSE 250 Index C
orIts goal is to provide long-term capital growth by matching the return of the FTSE 250 index, which represents medium-sized companies on the London Stock Exchange.
OCF: 0.18%
ISIN - Inc: GB00B80QFZ35
Acc: GB00B80QG052
Vanguard FTSE UK Equity Income Index
orOffering low-cost, diversified access to higher income UK shares, it tracks performance of the FTSE UK Equity Income Index, made up of the highest-dividend paying shares among the largest 350 companies on the London Stock Exchange.
OCF: 0.22%
ISIN - Inc: GB00B5B74684
Acc: GB00B59G4H82
Overseas shares
Fidelity Index World Fund W Inc or
A good fund to start a portfolio with, it tracks performance of the MSCI World Net Return Index of large- and medium- sized companies from more than 12 developed countries.
OCF: 0.15%
ISIN - Inc: GB00BP8RYC79
Acc: GB00BLT1YP39
Vanguard FTSE Developed World ex-UK Equity Index Fund Inc or
A good diversifier if you already have a lot of UK exposure in your portfolio.
OCF: 0.15%
ISIN - Inc: GB00B5B74F71
Acc: GB00B59G4Q73
L&G International Index Trust I
orTracking performance of the FTSE World (ex UK) Index, which has a broad spread of company shares from developed and emerging markets globally (excluding UK companies), it's cheaper than the Vanguard fund. However, it includes emerging markets countries, so might be a bit riskier.
OCF 0.13%
ISIN - Inc: GB00B2Q6HX78
Acc: GB00B2Q6HW61
Vanguard FTSE Developed Europe ex-UK Equity Index Inc or
Good for instant exposure to developed countries in Europe. Its main exposure is to French, German and Swiss companies.
OCF: 0.12%
ISIN - Inc: GB00B5B74N55
Acc: GB00B5B71H80
Higher-risk overseas shares
Vanguard Global Small Cap Index Fund Inc or
It tracks performance of the MSCI World Small Cap Index of smaller companies in developed countries.
OCF: 0.38%
ISIN - Inc: IE00B3X1LS57
Acc: IE00B3X1NT05
Fidelity Index Emerging Markets W Inc or
It aims to achieve long-term capital growth by closely matching performance of the MSCI Emerging Markets Index of rapidly developing economies.
OCF: 0.23%
ISIN - Inc: GB00BP8RYV68
Acc: GB00BLT1YT76
US shares
HSBC American Index C
orSeeking long-term capital growth, it matches the return of the S&P 500 Index of 500 large companies listed on the New York Stock Exchange or NASDAQ (another American stock exchange).
OCF: 0.08%
ISIN - Inc: GB00B80QG490
Acc: GB00B80QG615
Legal & General US Index I
or AccIts goal is to track performance of the FTSE USA Total Return Index, which captures large and mid-cap sized US companies.
OCF: 0.10%
ISIN - Inc: GB00B0CNGS66
Acc: GB00B0CNGT73
Bonds
Vanguard UK Gov Bond Index
orThis fund can be used to achieve lower- risk diversity from an equity portfolio. Seeks to
provide returns consistent with the performance of a market-weighted bond index of UK government fixed-income securities denominated in Pound Sterling.
OCF 0.15%
ISIN - Inc: IE00B1S75820
Acc: IE00B1S75374
L&G Short Dated Sterling Corp Bnd Index I
orHolds bonds consisting mainly of large, corporate investment-grade bond issues with maturities of between one and five years (the safer end of the maturity spectrum because interest rate changes will have less of an effect on the outcome to the investor).
OCF: 0.14%
ISIN - Inc: GB00BKGR3G14
Acc: GB00BKGR3H21
BlackRock Corporate Bond Tracker D
orIt seeks to provide both income and capital growth by aiming to track the performance of the benchmark Markit iBoxx GBP Non-Gilts Overall Total Return Index, of global corporate bonds. It holds more than 1,000 underlying bonds issued from around 10 countries.
OCF: 0.17%
ISIN - Inc: GB00B7J60R40
Acc: GB00B84DSW83
Vanguard Global Bond Index Inc or
This highly diversified fund gives exposure to more than 7,300 bonds with the US, Japan, Canada, France and Germany being the highest weighted countries.
OCF: 0.15%
ISIN - Inc: IE00B2RHVP93
Acc: IE00B50W2R13
Gold
Gold tends to make a good diversifier in a portfolio as it behaves differently to other asset classes and tends to rally while other assets are falling. This fund is an "exchange traded commodity" rather than a traditional index tracker fund. However, it's traded on the London Stock Exchange and you can buy it through most investment platforms.
Think of it like buying gold bars without the hassle of having to store your gold somewhere. The fund provides investors with the performance of the gold spot price through certificates collateralised with gold bullion. Each Gold P-ETC is a certificate, which is secured by gold bullion held in JP Morgan Chase Bank's London vaults.
OCF: 0.29%
ISIN: IE00B579F325
This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
These articles are provided for information purposes only. Â Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. Â The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.