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 Liam Gallagher brands Kanye West 'utter s**t' during BRIT Awards performance
- 2 Isis burns thousands of books and rare manuscripts from Mosul's libraries
- 3 People who sleep more than eight hours are more likely to have a stroke, research shows
- 5 Muslim women's rights campaigner writes heartfelt letter to girls thinking of joining Isis
Ukraine crisis: Putin will cut gas to Europe unless Russia is paid by the end of the week
Liam Gallagher brands Kanye West 'utter s**t' during BRIT Awards performance
Isis burns thousands of books and rare manuscripts from Mosul's libraries
Missing Mexico teachers: Protests organised by union quashed in violent police crackdown
Mohammed Emwazi: Nine things we now know about man named as Isis militant 'Jihadi John'
Oscars 2015: Birdman beats Boyhood as Eddie Redmayne and Patricia Arquette win big - as it happened
New theory could prove how life began and disprove God
Half of Ukip voters say they are prejudiced against people of other races
'Cash for access' scandal: Sir Malcolm Rifkind says 'unrealistic' for MPs to live on £67,000 salary
Aqsa Mahmood branded a 'disgrace' by her parents after claims she recruited three UK girls flying to Middle East
Ukraine crisis: 'One miscalculation, and Britain faces an existential threat to our whole being...'
iJobs Money & Business
£17000 - £25000 per annum: Recruitment Genius: An opportunity to join this new...
£18000 - £21000 per annum + OTE £45,000: SThree: SThree Group have been well e...
£20000 - £25000 per annum + OTE £45,000: SThree: SThree Group have been well e...
£36000 - £44000 per annum: Recruitment Genius: Encouraging more businesses to ...