With annual charges of 1% this fund is expensive for a tracker – investors should consider switching into a cheaper alternative. The fund was innovative when it launched in 1995, providing retail investors with easy and cheap access to the UK stockmarket. However, an increase in the number of rival funds has dramatically raised competition and driven down costs, and the performance of tracker funds is largely dependent on how cheap they are.
This tracker fund follows a full replication process – it buys shares in every company in the UK's FTSE All-Share Index, with the amount invested in each company dependent on the percentage of the index they represent. This index is made up of the FTSE 100, the FTSE 250 and FTSE Small Cap indices - over 600 companies in total. This gives investors substantial diversification including some international exposure, though the portfolio can be concentrated by company size – the multinationals of the FTSE 100 make up around 85% of the index.
Though primarily an equity fund, the manager will also use futures, a type of derivative which provides liquid exposure to the whole of the index. These are used to manage cash balances in the fund - by buying and selling futures the manager can regulate market exposure in response to inflows and outflows without the costs involved in trading all of the shares in the portfolio.