Personal Finance: How do trackers work?
Sunday 13 September 1998
Virgin buys all the shares in the index, in the correct proportions. This is called "full replication". The managers trade every 10 days or so. The make-up of the portfolio is rebalanced to match the index every time buying takes place.
This full replication costs more: Virgin's fund charges are 1 per cent a year. L&G's is just 0.5 per cent a year.
L&G uses a technique called "stratified sampling". This is the most widely- used method of reproducing the All Share index, and the theory is that the top 400-odd shares are bought in full, which gives full replication of around 90 per cent of the value of the All Share.
The rest of the shares are chosen according to sector; the overall fund represents the exact proportions of each sector (financials, pharmaceuticals, etc) as they appear within the All Share index.
The manager may decide, for example, to buy extra "weight" in engineering sector, and will simply buy shares in the biggest engineering firm which falls outside the top 400 companies, and perhaps one or two others - working from the top downward.
Critics say this isn't real index tracking as there is room for human judgement. The advantage of a big fund like L&G is that it finds it viable to buy many more shares than most other funds which use sampling: L&G now holds 783 of the 848 companies on the All-Share.
Contacts: L&G, 0500 116622; Virgin, 0345 900900
- 1 Nathan Collier: Montana man inspired by same-sex marriage ruling requests right to wed two wives
- 2 'Help me I'm trapped in a factory' messages keep being found on bottles of vitamin water
- 3 Right to die: Belgian doctors rule depressed 24-year-old woman has right to end her life
- 4 Wimbledon 2015: Dustin Brown knocks Rafael Nadal out of championship
- 5 Primark and Penny's heir Barry Ryan drowns trying to save his 21-year-old son
Nathan Collier: Montana man inspired by same-sex marriage ruling requests right to wed two wives
Russell Brand condemns moment of silence for Tunisia attack victims as 'minute of bulls**t'
Right to die: Belgian doctors rule depressed 24-year-old woman has right to end her life
Worker killed by robot at Volkswagen car factory
BP hit with record $18.7 billion fine over Deepwater Horizon Gulf oil spill
Greece crisis: IMF was pushed around by Angela Merkel and Nicholas Sarkozy – and now it is being humiliated
'I wish the BBC would stop calling it Islamic State' – David Cameron unleashes frustration at broadcaster
Greece crisis: The wider lesson is that it’s time to abandon this failed experiment in currencies
Forget little green men – aliens will look like humans, says Cambridge University evolution expert
Girl, 7, stares down hate preacher at Ohio festival with pro-LGBT rainbow flag gesture
They are neither a 'state' nor 'Islamic': Why we shouldn't call them Isis, Isil or IS
iJobs Money & Business
£15000 - £17000 per annum: Recruitment Genius: This company offers a range of ...
£15000 - £16000 per annum: Recruitment Genius: Customer Service Advisors are r...
£20000 - £25000 per annum + OTE £45K: SThree: SThree were established in 1986....
£40000 - £60000 per annum: Recruitment Genius: A Compliance Manager is require...