Best Trackers Funds UK for 2024
This article explains what tracker funds are, the pros and cons of investing in them, and some of the best tracker funds UK that investors should keep on their watchlist.
Table of Contents
What are Tracker Funds UK?
A concept every investor should at some point familiarise themselves with is that of the Exchange-Traded Fund (ETF). An ETF represents the value of a basket of different stocks that can be traded as one share. Buying an ETF allows an investor to receive the performance of a wider range of stocks.
Tracker funds are ETFs that track companies within a specific industry or stock sectors such as technology or healthcare companies, or that track companies within a specific market segment, such as the top 100 or top 250 companies within a given country.
Investing in tracker funds is also called index investing because some of these funds track a certain index such as the FTSE 100 (the top 100 companies by market capitalisation within the UK). Investing in funds that track an index is a form of passive investing. This is the opposite of active investing, in which an investor or fund manager performs research to select certain companies for their portfolio with the goal of beating the average returns generated by the market as a whole.
There are many different tracker funds on the market that follow all kinds of specific market segments or include only companies that meet certain criteria. This article introduces five of the best tracker funds UK to put on your watchlist.
Every fund on this list is issued by a US asset manager with some listed on the US stock exchange and some on the UK stock exchange. However, the UK-based investor need not feel excluded, as each of these funds trades are accessible with a regulated broker such as Admirals that provides access to global stock exchanges.
Best Tracker Funds UK to Watch
Having discussed the important points regarding ETFs, indexes, and tracker funds, it is time to present the list of the 5 best tracker funds UK to keep on watch. A more detailed description for each of these funds can be found below.
It is important to remember that the 'best' is subjective. Every investor has a different risk tolerance and investment objective. The list below serves as a good starting point to build your research upon before making any decisions.
These are the 5 best tracker funds UK to watch:
- Vanguard FTSE 100 ETF (VUKE) - The Top 100 UK Companies by Market Capitalisation
- Vanguard FTSE 250 ETF (VMID) - The Top 250 UK Companies Not Included in the FTSE 100
- iShares UK Property ETF (IUKP) - Strong Focus on Companies That Manage Property through REITs
- SPDR FTSE UK All Share ETF (FTAL) - A Near All-Encompassing UK Market Fund
- SPDR S&P UK Dividend Aristocrats ETF (UKDV) - A Fund of Dividend Paying UK Stocks
Vanguard FTSE 100 ETF - The Top 100 UK Companies by Market Capitalisation
An article about the best tracker funds UK would not hold up to scrutiny without mentioning Vanguard, the American investment advisor often championing passive investing with low-cost index funds.
And the ETFs Vanguard has on offer are exactly that: low-cost, passive, broad-market funds. The Vanguard FTSE 100 ETF tracks the performance of the FTSE 100 index. This index follows the top 100 UK companies by market capitalisation.
This ETF has 92% of its holdings in UK companies like AstraZeneca, HSBC, BP, Rio Tinto, and Unilever, among others, that are weighted according to market capitalisation. The FTSE 100 is generally recognised as a benchmark of blue-chip UK companies. ‘Blue chip’ means that a company is thought to be well-established.
The Vanguard FTSE 100 ETF was established in 2012 and trades under the ticker symbol VUKE on the London Stock Exchange (LSE). The management fee for this ETF is 0.18% per year (investors do not pay fees directly to the ETF manager, instead, any fees are accrued daily and are taken from the fund's assets monthly which are reflected in the price of the ETF). The fund also distributes its dividends to the shareholders of the ETF.
Vanguard FTSE 250 ETF- The Top 250 UK Companies Not Included in the FTSE 100
The Vanguard FTSE 250 ETF was established 2 years after Vanguard’s FTSE 100 ETF entered the market. In many ways, these ETFs are similar, with the most notable exception being that the FTSE 250 is an index covering mostly mid-cap UK companies, as it excludes the companies within the FTSE 100.
Historically, the FTSE 250 has seen slightly higher growth than the FTSE 100, which some argue is due to the fact that mid-cap companies have more room to grow than larger companies. As past performance is not indicative of future results, deciding whether this trend is likely to continue is entirely up to the investors themselves.
The top 10 holdings in the Vanguard FTSE 250 ETF are Dechra Pharmaceuticals, IMI, Spectris, Howden Joinery Group, Intermediate Capital Group, Diploma, Tate & Lyle, Games Workshop, Marks & Spencer, and EasyJet. Being companies of medium size, these names might not all ring a bell.
The fund trades under the ticker symbol VMID on the London Stock Exchange (LSE), has a management fee of 0.20% and distributes its dividends. Some investors choose to combine this ETF with VUKE to obtain a relatively broad exposure to the UK stock market and its top FTSE 350 companies.
iShares UK Property ETF - Strong Focus on Companies That Manage Property through REITs
Investing in property is an enticing proposition to some investors, as they are of the opinion that housing will always be in demand, even during economic downturns. However, buying property is easier said than done. Not only does one need significant capital to buy a house, but there are also all kinds of administrative barriers.
Another option is for investors to invest in real estate companies instead. For many investors, this is an accessible way into gaining exposure to what is happening in the property market. That is why the iShares UK Property ETF has found its way onto this list of the best tracker funds UK to watch.
This fund invests in companies such as Segro REIT, Land Securities Group REIT, and British Land REIT, among others. A REIT stands for real estate investment trust and is a way companies decide to hold a portfolio of properties.
iShares ETFs are issued by BlackRock, the largest asset manager globally with over $8 trillion in assets under management. The iShares UK Property ETF trades on the London Stock Exchange with the ticker symbol IUKP. Its management fee is 0.40% per year, and it pays out its dividends. These dividend payments could be substantial, as many of the ETFs holdings are Real Estate Investment Trusts (REITs), which are required to pay out 90% of their income as dividends.
However, the UK property is notoriously volatile which will be reflected in the ETFs price. Currently, the fund is trading around multi-year lows so more detailed research into the prospect of the UK property market and the types of properties the fund holds will be important.
SPDR FTSE UK All Share ETF - A Near All-Encompassing UK Market Fund
State Street Global Advisors (SSGA) issues the SPDR (pronounced ‘Spider’) ETFs. SSGA is the world’s fourth largest asset manager with just over $4 trillion in assets under management.
The SPDR FTSE UK All-Share ETF tracks the performance of the FTSE UK All Share index, a capitalisation-weighted index which comprises roughly 600 companies traded on the London Stock Exchange. This index is the aggregate of the FTSE 100, FTSE 250, and FTSE small-cap indexes, and represents nearly 99% of the total UK market capitalisation. It is no surprise this fund is therefore present on this list of the best tracker funds UK to watch.
Purchasing shares in the SPDR FTSE UK All Share ETF means investing in the broad economy of the UK. To some, that diversification is very welcome, as it ensures that if one sector is not performing well, this could potentially be offset by another sector that is performing well.
The fund trades under the ticker symbol FTAL on the London Stock Exchange and is available in both accumulating and distributing versions. The top holdings include familiar names like AstraZeneca, Shell, HSBC, Unilever, BP, and Diageo, among others. AstraZeneca is the largest holding, comprising roughly 7% of the fund’s capital allocation.
SPDR S&P UK Dividend Aristocrats ETF - A Fund of Dividend Paying UK Stocks
Dividend aristocrats are companies that have increased their dividend payouts in each of the past 25 consecutive years. This is certainly a remarkable feat, as to do this a company needs to both pay out more and more dividends, as well as, reinvest money into its operations to continue growing.
The SPDR S&P UK Dividend Aristocrats ETF is composed of UK companies that meet these stringent criteria and is listed on the London Stock Exchange under the UKDV ticker. The stocks within the funds are companies such as Intermediate Capital Group, IG Group Holdings, Legal & General Group, British American Tobacco, Unilever, Pearson, and Schroders among others.
Some investors are keen on investing in dividend aristocrats as they are generally considered to be more stable companies. Not only have these companies been around for at least 25 years, but they also usually have a long history of stable earnings, dividends, and revenue gains.
Moreover, the dividend yield allows investors to generate a steady income stream from their portfolios. This is especially attractive for investors who already have a substantial amount of capital, as this capital could produce an income stream. Though, this does usually come at the cost of future growth potential and the potential of a capital loss if the fund’s share price falls.
How to Invest in Tracker Funds UK
With Admirals, you can invest in global stocks and ETFs with the following commissions:
- UK stocks – 0.1% of trade value, 1 GBP minimum commission.
- US stocks – From $0.02 per share, 1 USD minimum commission.
You can learn more about investing commissions on the Admirals Contract Specification page.
You can search for global stocks from the Invest.MT5 web platform and invest in four steps:
- Open an account with Admirals.
- Click on Trade on one of your live or demo trading accounts to open the web platform.
- Search for your symbol at the top of the search window.
- Click Create New Order in the bottom window to open a trading ticket to input your trade size, stop loss and take profit level.
Why Invest in the Best Tracker Funds UK?
Investing in the best tracker funds UK is not necessarily the optimal strategy for everyone, but there are benefits which are important to consider. Firstly, investing in tracker funds are usually lower cost, as they are passively managed.
Passively managed tracker funds such as the ones on this list often charge an annual management fee between 0.1% and 0.8%. This is in contrast to actively managed funds which tend to charge over 1.0% yearly.
Secondly, tracker funds are an easy way to gain exposure to a broad array of securities within a market segment or industry. Many tracker funds, like the best tracker funds UK on this list, track the performance of the top 100 or top 250 companies in a given economy like the UK.
However, there are also risks as well. When an economy is performing poorly this will likely be reflected in lower earnings for businesses which will cause the stock market to fall. As a tracker fund effectively tracks a stock market then an investment will fall in value as well.
FAQs on Tracker Funds UK
What is a tracker fund?
A tracker fund is a fund that follows the performance of a certain index. This can be a market segment, a specific sector or an overall economy.
What are the different types of tracker funds?
There are many different types of tracker funds. Many track the most prominent companies within a given country’s economy, such as the UK for example. There are also tracker funds based on indexes which cover regions including Europe, America and Asia, as well as, specific industries like healthcare, property, or technology.
What are the benefits of a tracker fund?
Investing in a tracker fund is a form of passive investing. It offers a way for investors to track the performance of a group of stocks with just one investment. But, as in any form of investing, the investment can fall in value as well.
Do you get dividends from tracker funds?
There are two things that can happen to the dividends paid out by the companies within a tracker fund: accumulation or distribution. ‘Accumulation’ means that these dividends are used to reinvest back into the fund to strive for maximum returns. ‘Distribution’ means the dividends are paid out to the investors who hold the fund’s shares.
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