A tracker fund aims to replicate or mirror the performance of a stock market index such as the FTSE 100. The premise is simple; if the index which the fund is tracking goes up, the fund goes up. Likewise, if the tracked index goes down, the fund goes down in value too.
A tracker fund will not producer superior returns to the index in which it is tracking and likewise it will not lose more than the index should the index perform negatively. A computer buys all or the majority of the representative assets of the index in which the fund is tracking to achieve this.
There are many tracker funds available to investors – tracking global as well as UK indexes. Tracker funds are a type of passive investment strategy and as such are associated with lower charges than actively managed funds.