EDUCATIONAL INSIGHT

AN INTRO TO TRACKER FUNDS

Article by Satrix Investments

AN INTRODUCTION TO TRACKER FUNDS


Index tracking funds do exactly what the name suggests – they track or replicate a particular index. A tracker fund which uses full physical replication simply holds the same shares that are contained in the index in the same weighting as they appear in the index. 


The tracker fund will mirror the index with the aim of achieving a return as close as possible to that of the index.


For example, a fund that tracks the FTSE/JSE Top 40 index would hold the shares of the same forty companies, in the same proportion (weighting), as the index. If the index or sector does well so does your tracker fund. If the index drops so will the price of the fund. The fund therefore tracks or replicates the performance of the index. This is the same whether the fund is an ETF or a unit trust.

Using the Satrix Top 40 as an example, the portfolio manager of the fund will buy and sell shares when the FTSE/JSE Top 40 index adds or removes stocks from the index. This is known as rebalancing and in the case of the FTSE/JSE Top 40 index this is done quarterly in line with the quarterly index review. Any other index changes that occur intra-quarter will be applied to the fund simultaneously.

A tracker fund is also referred to as a passive investment which means there is no active management (stock picking by exercising investment judgement) in selecting the underlying shares as the fund simply tracks the performance of the specified market index.



Satrix offers a wide range of index tracking funds in both ETF and Unit Trust vehicles, which means you can select funds across asset classes (for example equity, bonds, property, offshore). You can also select niche funds that track a particular sector or theme for example financials, resources, industrials, high dividend yield or momentum. In the Satrix Unit Trust suite there are also multi-asset or balanced funds that offer you a blend of all asset classes in one single fund.

The added benefit of a tracker fund is that it does not have to incur the high costs associated with research to perform active management and therefore can provide market returns at a lower cost.



POSTED : 8 DECEMBER 2016

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