Looking for a ‘passive’ way of investing in unit trusts? A tracker fund could be perfect for you

Julie Brownlee, Fsp Invest, 26 Feb. 2014

Tags: passive, investing, unit trust, unit trust fund, funds, tracker funds, trackers, what is a tracker fund, what is a tracker unit trust, passively managed,



Once you delve into the world of unit trusts, you may be surprised with the sheer number available to invest in. If you fancy a passive approach to investing, then tracker funds might be a good option for you. But what exactly is a tracker fund? What makes it ‘passive’? Let’s take a closer look at tracker funds…



When it comes to picking a unit trust to invest in, you have two choices, the team of experts at The South African Investor explain…

You can go for an actively managed fund or a passively managed fund.

An actively managed fund is when a fund manager chooses shares set to perform better than the rest. A passively managed fund is when a fund manager chooses to replicate an index, such as the JSE top 40.

The argument for passive investing comes from the argument that actively managed funds may for periods outperform the market, but this isn’t sustainable for a long period of time. So your money is better off in a passive fund.

And this is where tracker funds comes in. They fall into the passively managed category.

Tracker funds may sound a bit mundane and pedestrian. But by achieving the market average, you could be better off than investing in a fund that performs well one year, but doesn’t do so well other years.

There are risks investing in tracker funds

But if you do decide to invest in a tracker fund, bear in mind that if the market takes a tumble, the fund’s performance will follow.

Because of the mandate of the unit trust, the portfolio manager has to stick to replicating the underlying index. So the fund manager can’t invest in other assets to offset this.

But if you’re investing for the long-term, any market dips should smooth out over time. As such, these funds, despite tracker sounding like a safe option, can be quite risky to invest in.

Tracker funds also tend to have lower fees attached as the fund manager is replicating the underlying index.

So there you have it, a passive way of investing in unit trusts.


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