Best Tracker Funds UK 2021 – Invest with Zero Fees Today

Tracker funds, as the name suggests, track the performance of an underlying asset. Many trackers replicate the performance of major stock indices and will therefore contain a basket of stocks that match the index constituents. There are however many other tracker funds – often simply referred to as index funds – covering all areas of the market besides stocks, taking in different asset classes. Exchange-traded funds (ETFs) are a popular way of accessing trackers, but there are mutual fund tracker products to consider too.

Investing in a tracker fund can often be more profitable than trying to pick stocks individually. As we show below, the advantage of trackers is that they provide instant cheap diversification, which is a key way of mitigating risk and is an alternative way of effectively putting stocks into risk-level buckets.

Tracker funds are also a cheap way of gaining exposure to a broad range of securities. In our Best Tracker Funds UK 2021 survey we cover the hows and whys of investing in tracker funds.

We also select the top 10 tracker funds for UK market, the best tracker funds across all markets and the best tracker fund brokers to start your tracker investment journey. 

Top 10 Tracker Funds in the UK

We have selected the top 10 UK tracker funds based on a number of assumptions on where the economy and market are headed this year. They are not necessarily the best performing tracker funds and that’s because past performance is not a guide to future performance. Neither are they necessarily the cheapest tracker funds.

The FTSE 100 is an undoubted laggard set against other leading world stock market indices, especially its US counterparts. However, this is a year when we expect a bounce-back from the FTSE 100. Although written off by some as the quintessential ‘legacy’ stock market, because of its domination by energy, metals, and financials, those are all sectors that are expected to benefit from the recovery in the global economy as the pandemic slips into the rear mirror. Our first two choices then, provide a choice of either mutual fund or ETF fund (Fidelity Index UK Fund or iShares Core FTSE 100 EUCITS ETF.

Ethical, income and commodities tracker funds

ESG investing is in vogue. And contrary to an outdated view, you do not have to forego returns by investing in ESG funds. On the contrary they provide and element of diversification and were one of the best performing sectors last year, so UBS MSCI United Kingdom IMI Socially Responsible UCITS ETF makes an entry in third place.

Vanguard FTSE 250 ETF focuses on the mid caps. These stocks have more exposure to the UK economy than the larger cap stocks and as such may be better positioned for the beginning stages of the recovery. We have selected three income focused stocks in order to provider an element of protection combined with solid total returns (reinvested dividends) potential: SPDR S&P UK Dividend Aristocrats ETF, Vanguard FTSE UK Equity Income index fund and the Legal & General All Stocks Gilt Index Trust mutual fund.

Property (iShares UK Property ETF), small caps (iShares MSCI UK Small Cap ETF) and commodities (WisdomTree Broad Commodities ETF) make up the rest of the selection. The commodities ETF is not strictly a UK-focused ETF but because of the preponderance of mining and energy stocks listed on the London Stock Exchange, we include it here.

Vanguard tracker funds

You will have noticed a couple of Vanguard tracker funds mention above and as you continue through this guide, which is because of their excellent product range. Its founder, John Bogle, virtually invented passive investing and tracker fund.

Although some of the picks overlap – as you can see by some of the top 5 holdings shown in the tables below – it therefore wouldn’t make sense to hold more than one of the overlapping funds. However, generally, taken as a whole our top 10 tracker funds for the UK market selection is intended to provide a starting point for building a balanced portfolio.

Also, a fully balanced portfolio in addition to having a mix of asset classes, needs to take a regional view, which means looking beyond the UK to other markets – see out Best Tracker Funds 2021 reviewed section.

1. Fidelity Index UK Fund

  • Index: FTSE All-Share index
  • Ongoing charge: 0.06%
  • Minimum initial investment: £500; additional £250
  • ISA: Yes

Top five holdings

Holding Weightings
Unilever 5.06%
AstraZeneca 4.35%
HSBC Holdings 3.49%
GlaxoSmithKline 3.01%
Diageo 3.00%

Your money is at risk.

2. iShares Core FTSE 100 UCITS ETF (ISF)

  • Index: FTSE 100 index
  • Ongoing charge: 0.07%
  • Minimum initial investment: £500; additional £250
  • ISA: No

Top five holdings

Holding Weightings
Unilever PLC 14.55%
AstraZeneca PLC 5.44%
HSBC Holdings PLC 4.63%
Diageo PLC 3.97%
Rio Tinto PLC 3.67%

 

Your money is at risk.

3.  UBS MSCI United Kingdom IMI Socially Responsible UCITS ETF (UKSR)

  • Index: FTSE 250 Index
  • Ongoing charge: 0.10%
  • Fund size: £2.6 billion
  • ISA: No

Top five holdings

Holding Weightings
Unilever 1.31%
Vodafone Group 1.10%
RELX 1.09%
Prudential 1.07%
Reckitt Benckiser Group 1.05%

Your money is at risk.

4. Vanguard FTSE 250 UCITS ETF (VMID)

  • Index: FTSE 250 index
  • Ongoing charge: 0.10%
  • Fund size: £2.6 billion
  • ISA: No

Top five holdings

Holding Weightings
Weir Group 1.31%
F&C Investment Trust Ord 1.10%
Direct Line Insurance Group 1.09%
G4S 1.07%
ITV 1.05%

 

Your money is at risk.

5. SPDR S&P UK Dividend Aristocrats UCITS ETF

Index: S&P UK High Yield Dividend Aristocrats Index

Ongoing charge: 0.30%

Fund size: £95 million

ISA: No

Top five holdings

Holding Weightings
Jupiter Fund Management 5.35%
Legal & General Group 4.87%
Phoenix Group Holdings 4.72%
Morrison (Wm) Supermarkets 4.69%
Tate & Lyle 4.65%

Your money is at risk.

6. Vanguard FTSE UK Equity Income Index Fund

Index: FTSE UK Equity Income Index

Ongoing charge: 0.14%

Minimum initial investment: £100

ISA: Yes

Top five holdings

Holding Weightings
Anglo American 5.64%
BHP Group 5.13%
Rio Tinto 5.08%
Vodafone Group 4.96%
Tesco 4.74%

Your money is at risk.

7. iShares UK Property UCITS ETF (IUKP)

Index: FTSE EPRA/NAREIT UK Index

Ongoing charge: 0.40%

Fund size: £653 million

ISA: No

Top five holdings

Holding Weightings
Segro 20.41%
Land Securities Group 7.76%
British Land Co 7.62%
Derwent London 5.66%
Tritax Big Box REIT 5.60%

Your money is at risk.

8. iShares MSCI UK Small Cap ETF (CUKS)

  • Index: MSCI UK Small Cap
  • Ongoing charge: 0.58%
  • Fund size: £304 million
  • ISA: No

Top five holdings

Holding Weightings
Intermediate Capital Group 1.44%
Rightmove 1.43%
Smith (DS 1.41%
Weir Group 1.39%
B&M European Value Retail SA 1.35%

 

Your money is at risk.

 

9. Legal & General All Stocks Gilt Index Trust Class C Inc

  • Index: FTSE Actuaries British Government All Stocks Index
  • Ongoing charge: 0.10%
  • Minimum initial investment: £100
  • ISA: Yes

Top five holdings

Holding Weightings
UK 4.5% 2.44%
UK 1.62% 2.31%
UK 0.88 2.30%
UK 3.5% 2.27%
UK 1.5% 2.24%

Your money is at risk.

10. WisdomTree Broad Commodities (GBP) ETF

  • Index: Bloomberg Commodity Index
  • Net expense ratio: 0.54%
  • Fund size: £65 million
  • ISA: No

Top five holdings

Holding Weightings
TRS Bloomberg Commodity TR USD 100.00%

 

Your money is at risk.

Best Tracker Funds 2021 Reviewed

1. Xtrackers MSCI China UCITS ETF (XCX6)

This ETF tracks the performance of the 710 large and medium-sized companies that make up the MSCI China Index, which covers around 85% of the offshore China stocks universe. The ETF fully replicates the index and the top 10 holdings account for 47% of the assets. Given the structure of the Chinese equity market, the fund exhibits a certain degree of sector concentration – Consumer Cyclical 33.90%, Communication Services 21.55% and has a fair slug of Financial Services at 12.95%, which could be helpful ballast if bond yields (and therefore interest rates) continue to tick higher. The ongoing charge is 0.65%.

LON: XCS6

Your money is at risk.

  • Index: MSCI China TRN Index
  • Ongoing charge: 0.65%
  • Fund size: £1.67 billion
  • ISA: No

Top 10 holdings

Holding Weightings
Tencent Holdings Ltd 15.70%
Alibaba Group Holding Ltd 14.94%
Meituan 5.13%
JD.Com Inc 2.38%
NIO Inc 2.27%
China Construction Bank Corp Class H 2.27%
Ping An Insurance (Group) Co. of China Ltd Class H 2.18%
Baidu Inc 1.99%
Pinduoduo Inc 1.96%
Xiaomi Corp Ordinary Shares – Class B 1.68%

2. SPDR S&P 500 ETF Trust

This fund mirrors the performance of the S&P 500.It has a market cap of $352 billion, making it. the largest ETF in existence. The US stock market is the largest in the world and also lists major tech growth stocks, with an average annualised return of 10%. Dividend yield is 1.4%

SPY etf

Your money is at risk.

  • Index: S&P 500 stock market Index
  • Net expense ratio: 0.0945%
  • Fund size: $352 billion
  • ISA: No

Top 10 holdings

Holding Weightings
Apple Inc 6.68%
Microsoft Corp 5.29%
Amazon.com Inc 4.37%
Facebook Inc A 2.07%
Tesla Inc 1.68%
Alphabet Inc Class A 1.66%
Alphabet Inc Class C 1.60%
Berkshire Hathaway Inc Class B 1.42%
Johnson & Johnson 1.30%
JPMorgan Chase & Co 1.22%

3. SPDR S&P Euro Dividend Aristocrats ETF

This income-focused ETF is designed to track the performance of the 40 eurozone companies in the S&P Europe Broad Market index with the highest dividends that have increased or held their dividends for at least 10 consecutive years. The top 10 holdings represent 40% of the portfolio’s total assets. Dividends are paid half-yearly and the current yield is 3.2%. The fund’s ongoing charges are 0.3%. It invests heavily in blue chip large caps from across the continent, with Allianz, Total and Siemens among its top 10 holdings. On a sector basis it is 20% invested in utilities, 15% basic materials and 14% in industrials, giving this income focused ETF a strong cyclical bent. This fund will suit value investors.

EUDV

Your money is at risk.

  • Index: S&P Euro High Yield Dividend Aristocrats Index
  • Net expense ratio: 0.30%
  • Fund size: £1.09 billion
  • ISA: No

Top 10 holdings

Holding Weightings
Fortum Oyj 5.27%
Allianz SE 4.65%
UPM-Kymmene Oyj 4.64%
Total SE 4.55%
EDP – Energias de Portugal SA 4.44%
Bayer AG
Deutsche Post AG 4.27%
Siemens AG 4.05%
Munchener Ruckversicherungs-Gesellschaft AG 3.98%
EXOR NV 3.87%

4. Vanguard Global Aggregate Bond Index GBP Hedged

This fund physically invests in investment-grade bonds included in the Bloomberg Barclays Global Aggregate Float Adjusted and Scaled index, hedged back to sterling, so currency risk is removed. Most holdings are government bonds. The income share class pays a quarterly dividend and the current yield is 1.86%. Ongoing charges 0.15%.

VAGS

Your money is at risk.

 

  • Index: Bloomberg Barclays Global Aggregate Float Adjusted and Scaled Index in GBP
  • Net expense ratio: 0.10%
  • Fund size: £60 million
  • ISA: No

Top 10 holdings

Holding Weightings
Fannie Mae Or Freddie Mac 0.94%
United States Treasury Notes 0.12% 0.86%
United States Treasury Notes 0.38% 0.84%
Federal National Mortgage Association 3% 0.66%
Federal National Mortgage Association 3.5% 0.60%
Federal National Mortgage Association 2.5% 0.59%
Federal National Mortgage Association 4% 0.45%
United States Treasury Notes 0.62% 0.37%
Italy (Republic Of) 0.37%
United States Treasury Notes 0.25% 0.35%

 

5. Vanguard FTSE All World UCITS ETF

This is one of a number of Vanguard tracker funds we have picked. Vanguard FTSE All World ETF tracks the performance of the FTSE All-World index, which includes more than 3,514 holdings spanning more than 45 countries, including both developed and emerging markets. The ETF invests physically (buys the actual asset and not a derivative) in these securities in as far as possible and the top 10 holdings (seven of them US companies) account for around 15% of assets. Dividends are paid quarterly and the current yield is 1.47% (31 January 2021). Ongoing charges 0.22%.

VWRL

Your money is at risk.

  • Index: FTSE All World Index
  • Ongoing charge: 0.22%
  • Fund size: £6.4 billion
  • ISA: No

Top 10 holdings

Holding Weightings
Apple Inc 3.62%
Microsoft Corp 2.95%
Amazon.com Inc 2.31%
Facebook Inc 1.05%
Tesla Inc 1.02%
Alphabet Inc (Google L class) 0.96%
Alphabet Inc (Google C class) 0.87%
Taiwan Semiconductor Manufacturing Co Ltd 0.86%
Tencent Holdings Ltd 0.85%
Alibaba Group Holding Ltd 0.76%

6. Vanguard LifeStrategy 60% Equity UCITS (EUR) ETF

This ETF provides 60% exposure to global equities and 40% exposure to global bonds via several index-tracking funds that are managed by Vanguard, so in that respect it a fund of funds product. It could be said to have an element of active management in that the proportions of each fund invested in may vary from time to time, but ultimately it is a sophisticated tracker. The bond content has 13% of assets in the UK and the remainder spread across the US, Europe and Japan. Equity exposure is mainly via the US, at 27%, and UK, at 15%. Ongoing charges are 0.22%. The chart below shows the ETF version but there is also an index fund version, which can be purchased direct from Vanguard (the index fund chart is not available on Google Finance).

V60A

Your money is at risk.

  • Index: Invests in other Vanguard passive funds
  • Net expense ratio: 0.22%
  • Fund size £12.2 million (index fund £9.6 billion)
  • ISA: Yes (index fund version), but not the ETF

Top 10 holdings

Holding Weightings
Vanguard FTSE All-World UCITS ETF 19.34%
Vanguard FTSE Developed World UCITS ETF USD Distributing 19.32%
Vanguard Global Aggregate Bond UCITS ETF EUR Hedged Income 19.14%
Vanguard FTSE North America UCITS ETF 11.14%
Vanguard EUR Eurozone Government Bond UCITS ETF 6.13%
Vanguard USD Trs Bd ETF EUR H Acc 6.00%
Vanguard USD Corp Bd ETF EUR H Acc 5.46%
Vanguard FTSE Emerging Markets UCITS ETF USD Distributing 4.75%
Vanguard FTSE Developed Europe UCITS ETF 3.28%
Vanguard EUR Corporate Bond UCITS ETF 2.05%

 

7. iShares Global Clean Energy ETF

This ETF, rated on Interactive Investor’s ACE 30, seeks to track the S&P Global Clean Energy index, which gives exposure to firms that produce energy from solar, wind and other renewable sources. It is a highly concentrated fund with the top 10 holdings accounting for 51% of total holdings. Altogether there are 30 constituents and the fund is most exposed to the US, China and New Zealand. Ongoing charges 0.46%.

INRG

Your money is at risk.

  • Index: S&P Global Clean Energy Index
  • Ongoing charge: 0.65%
  • Fund size: £4.75 billion
  • ISA: No

Top 10 holdings

Holding Weightings
Plug Power Inc 10.70%
Enphase Energy Inc 5.62%
Daqo New Energy Corp 5.31%
Verbund AG 4.78%
Ormat Technologies Inc 4.56%
Xinyi Solar Holdings Ltd 4.52%
Siemens Gamesa Renewable Energy SA 4.24%
Meridian Energy Ltd 3.90%
First Solar Inc 3.86%
Vestas Wind Systems A/S 3.73%

8. UBS MSCI United Kingdom IMI Socially Responsible UCITS ETF (UKSR)

The ETF has outperformed the Large Cap Equity Morningstar category over one, three and five years, although performance over the past six months has lagged the category average. It has dropped from first quartile over the longer time periods to fourth over six and three months. However, with nearly 25% invested in financials and 18.7% in consumer defensives, this fund is relatively safe as well as ticking the SRI boxes. Also its risk is further moderated by a 3-year standard deviation of 16.3% compared to 20% for the category as a whole, placing towards the lower risk end of the category spectrum.

UKSR

Your money is at risk.

  • Index: MSCI UK IMI Extended SRI Low Carbon Select 5% Issuer Capped Index
  • Ongoing charge: 0.28%
  • Fund size: £547 million
  • ISA: No

Top 10 holdings

Holding Weightings
Unilever 8.95%
Vodafone Group 4.69%
RELX 4.62%
Prudential 4.40%
Reckitt Benckiser Group 4.26%
AstraZeneca 4.08%
London Stock Exchange Group 3.99%
Barclays 3.32%
Ferguson 2.62%
Legal & General Group 2.03%

9. Invesco EQQQ NASDAQ-100 UCITS (GBP Hedged) ETF

This is the hedged version of the wildly popular Powershares QQQ ETF.  It physically invests in all 100 companies that are members of the technology heavy NASDAQ 100 index. The top 10 holdings account for 51.8% of assets. If dividend investing is your thing, then it’s worth noting that dividends are paid quarterly. The ETF is also hedged to control foreign exchange risk. As you would expect, the fund is overwhelmingly invested in the US, at 95.7%.Ongoing charges are 0.3%.

EQGB

Your money is at risk.

  • Index: NASDAQ 100 index
  • Ongoing charge: 0.35%
  • Fund size: £3.99 billion
  • ISA: No

Top 10 holdings

Holding Weightings
Apple Inc 11.68%
Microsoft Corp 9.40%
Amazon.com Inc 8.34%
Tesla Inc 4.86%
Alphabet Inc 3.52%
Facebook Inc 3.30%
Alphabet Inc 3.20%
NVIDIA Corp 2.86%
PayPal Holdings Inc 2.69%
Intel Corp 1.95%

10. iShares Edge S&P 500 Minimum Volatility UCITS ETF

This ETF endeavours to track the performance of selected large US companies, with a factor element that targets those companies that have lower volatility characteristics than other shares in the S&P 500 index. It provides physical optimised exposure to 116 such companies, with the top 10 accounting for 20% of assets. Dividend income is capitalised (reinvested) and ongoing charges are 0.2%. Morningstar gives the fund a low risk rating.

MVUS

Your money is at risk.

  • Index: S&P 500 Minimum Volatility Index
  • Ongoing charge: 0.20%
  • Fund size: £1.2 billion
  • ISA: No

Top holdings

Holding Weightings
Microsoft Corp 2.80%
Accenture PLC 2.58%
Berkshire Hathaway Inc 2.57%
Qualcomm Inc 2.52%
Nike Inc 2.51%
CVS Health Corp 2.50%
Chubb Ltd 2.50%
Adobe Inc 2.46%
Texas Instruments Inc 2.45%
Amazon.com Inc 2.44%

 

What Tracker Funds?

Tracker funds cover the full spectrum of the investable universe and have grown in popularity because of their easy access and low fees. Your choice of what tracker fund to choose and how many, will depend largely on your risk tolerance and investment goals.

If you do not plan to be hands-on with your investments and don’t want to try and pick winning stocks and prefer to take less risk, then the passive investing approach exemplified by trackers provides plenty of good options.

Additionally, if you want to beat an index, then trackers are not the right place to be looking. Instead you should plump for an actively managed mutual fund or select individual stocks yourself that think are going to outperform the index. These days there are even a number of actively managed ETFs to choose from.

Below is a list of the asset classes in which tracker funds provide exposure:

  • equities
  • bonds
  • commodities
  • property
  • thematic
  • alternative

Types of Tracker Funds

Tracker funds come in two main types: ETFs and index funds.  However, investors should bear in mind that ETFs can sometimes be the more expensive pick alongside mutual funds (all other index funds), especially if you plan to trade indices more often – this is because of the brokerage dealing charges involved for ETFs as against mutual funds.

Equities and bonds are the most popular areas in which to find trackers, and the major stock indices in particular. But it is perfectly possible to build a balanced passive portfolio using just tracker funds.

Why Invest in Tracker Funds?

ETFs and index funds are cheap ways to track an index. Warren Buffett recommends that his wife puts their wealth into an S&P 500 tracker, where you’ll find the best US stocks, when he’s gone, as the best way to safely grow your investments. With an endorsement like that, it would be foolish not to investigate further. Trackers are cheap and efficient ways to access a collection of securities all bundled into one product. This makes the best tracker funds ideal for achieving diversification and therefore a convenient way of managing risk. Tracker funds come in two main guises: ETFs and index funds. We look at the differences between them below to give you an idea of which are the best tracker funds for your needs.

  • ETFs trade in the same way as stocks, in that investors can buy and sell shares throughout the day. Index funds trade once per day, after the market closes.
  • ETFs tend to have lower minimum investment levels than index funds.
  • There is a broader spread of ETF availability than there is for index funds on the typical investment platform.
  • Because they tend to be traded via platforms, ETFs usually incur more costs in the form of broker commissions and bid-ask spreads than index funds (which are traded directly with the fund provider). Therefore, with ETFs, if you trade a lot charges can mount, unless you use a commission-free broker such as eToro.
  • ETFs can be traded using different execution methods (such as limit orders).
  • Index funds tend to be easier to make repeat investments into than ETFs (including dividend reinvestment plans).

Best Tracker Funds Brokers

The UK has dozen of investment platforms and stock brokers to choose from. We have narrowed it down to three: eToro, Finceo Bank and Hargreaves Lansdown, which believe provide a fair representation of all the market has to offer. eToro wins out at the top of the pile because of its value for money, but each individual investors requirement will differ, and so too will their choice of broker ti suit their investment needs.

1. eToro – Buy Tracker Funds with Zero Commission

etoro logoWe have mentioned eToro a number of times already in this guide for good reason – trading is commission-free; eToro fees are among the lowest in the broker marketplace. The FCA-regulated broker – which now has more than 13 million clients worldwide, allows you to invest in a range of popular tracker funds, both through ETFs and its own offering of its proprietary CopyPortfolios. In addition, if you fancy the CFD trading route, the eToro is an especially good fit.

Tracker funds available on eToro

  • 255 ETFs
  • 40 CopyPortfolios

Not all of the ETFs are strictly trackers, but most are. The exception are the active funds from the likes of Ark Investments. However, you can find many top ETFs listed here, such as the Powershares QQQ ETF.

buy qqq on etoro

 

On eToro ETFs can either be accessed as the underlying product or through contracts for difference (CFDs) instruments. The screenshot above shows the CFD version and i out of hours so it shows a ‘set order’ button.

If you elect not to use leverage then you will be buying the actual underlying ETF. If you go down the CFD route, remember that there are overnight charges but they do come with the advantage of being able to ‘sell short’, which means you benefit when the price falls. For both ETFs and CFDs there is a spread between the buy and sell price.

In addition to the CopyPortfolios, you can also passively follow individual trader using the Copy Trader feature, although there are specially packaged CopyPortfolios focused on copying individual traders on the platform. The Copy Trader feature is not a traditional tracker fund as such, but you are tracking an experienced trader with proven verifiable returns, as displayed in real-time on the eToro platform. Below is the term sheet for the SharpTraders CopyPortfolio ,which copies 20 individual eToro traders.

sharptraders copyportfolio term sheet etoro

 

There are a total of 40 CopyPortfolios to choose from. They are divided into three area: market, top trader and partner CopyPortfolios. For example the screenshot below shows the Driverless Copy Portfolio, which holds stocks to give exposure to self-driving car stocks:

etoro driverless copyportfolio

An additional benefit of choosing eToro is that the broker is suited for newbie investors. Both the website and mobile app are easy to use and there is no overly confusing investment jargon. Getting started with eToro takes literally a few minutes and you can instantly deposit funds with a UK debit/credit card or e-wallet. You will have to verify your account to use all the trading features, but this can be completed at a later date when you have items such as passport and utility bill to hand to confirm your ID. And of course – your money is safe at the broker, as its FCA regulated and covered by the FSCS.

Pros

  • 0% commission broker
  • Innovative CopyPortfolios and Copy Trader features
  • 255 ETFs and 40 CopyPortfolios to choose from
  • CFD markets also offered, so you can also go ‘short’
  • Social networks with copy trading
  • Regulated by the FCA
  • FSCS coverage of up to £85,000

Cons

  • Withdrawal and inactivity fees
  • Foreign exchange charges

75% of retail investor accounts lose money when trading CFDs with this provider.

2. Fineco Bank – Trade a Huge Range of Funds with Low Fees

Fineco logo

If your chosen investment is not hosted by eToro, then the next option on the table is Fineco Bank. This trusted provider is backed by an Italian investment bank – and is fully-licensed by the FCA. FSCS protections are also in place, so the safety of your funds should not be a concern.

For us, Fineco Bank stands at because of the sheer size of its asset library. Via ETFs, there are literally thousands of ETFs and index funds to choose from as well as model portfolios.

If you choose Fineco you can sign up for its regular saving plan in which you pay a monthly fee. The basic plan starts at £2.95 a month.For £19.85 a month you can make 12 trades which represents a considerable saving but it can’t compete with eToro’s 0% commissions. But if you are looking for a platform that has a huge range of securities to choose from, then Fineco Bank may be for you. Aside from index funds and ETFs, there are options and futures markets, bonds and of course shares (£2.95 per trade) and CFDs.

Fineco charge 0.6 pips in the spread on FTSE 100 and NASDAQ CFDs.

Fineco is also strongly competitive on exchange rate fees, even beating Revolut:

FinecoBank £4.46 £22.30
REVOLUT £4.99 £44.93

 

You also need to factor in a 0.25% annual platform fee. On the flip side, the minimum investment is just £100 on Fineco Bank and you can easily transfer funds from your UK bank account.

Pros

  • Charges just £2.95 per trade when buying and selling ETFs
  • Tight spreads on CFD index funds
  • Access to thousands of UK and international stocks and funds, including tracker funds
  • Deposit funds with a UK bank account
  • Heavily regulated, including an FCA licence
  • Suitable for both newbies and seasoned investors
  • Great research and educational department
  • Super secure logon and account management
  • Can also apply for a Fineco Bank debit card

Cons

  • 0.25% annual fee
  • Regular savings plan schedule overly complicated

Your money is at risk.

3. Hargreaves Lansdown

 

Hargreaves Lansdown is the UK’s largest direct to consumer stockbroker. This gives it some advantages other players when it comes to tracker funds. Mutual funds come in a number of share class, such as accumulation and income classes. In the case of Hargreaves Landown, because of its size it has been able to do deals with fund management firms in which they offer classes of units that are exclusive to Hargreaves that carry lower fees.

For example, the iShares Japan Equity Index fund normally comes with a fee or 0.51%. However, it you are a Hargreaves client you can buy the H class of the fund with a fee of just 0.08%, a considerable saving.

There are no dealing charges for index funds of the mutual fund type as opposed to ETFs. However , there is an annual charge for holding funds that varies depending on the value of your holdings:

Value of
funds
From
£0 – £250,000
Between
£250,000 – £1m
Between
£1m – £2m
Over
£2m
Charge 0.45% 0.25% 0.1% No charge

 

As with Fineco, there is a huge choice of ETFs and Exchange traded commodities to choose from. The dealing charges, however, are among the most expensive in the industry at between £11.95 and £5.95 per trade. But Hargreaves is renowned for its customer support, well-designed website, educational, research and portfolio management tools, including a top-notch phone app, in addition to a broad range of other services, which includes an advice.

Unlike the other two broker on our top 3 brokers for tracker funds list, there’s the Hargreaves Lansdown stocks and shares ISA (Individual Savings Accounts) to bring into consideration – a tax-free wrapper for your savings with a government allowance of up to £20,000 a year.

Hargreaves’ clout in the industry also gives its customers access to some IPO subscriptions, which means you can buy into company issues before the shares start trading publicly on the exchange.

Pros

  • Huge range of ETFs and index funds
  • Has special classes of funds with low fee exclusive to Hargreaves. Lansdown clients
  • Superb customer service
  • ISA accounts you can keep tracker funds in, so capital gains are tax free
  • Heavily regulated, including an FCA licence
  • Excellent website and app
  • Top-notch research and educational department

Cons

  • High annual management fee to hold index funds
  • High dealing charges at £11.95

How to Invest in Tracker Funds

In this walkthrough we are using the eToro website. We choose eToro because it has some of the cheapest tracker funds available.

1. Click 'Trade Markets' – select 'Indices'

Click 'trade markets' in the grey vertical navigation bar on the left and select 'indices' from the asset/instruments view and then select the NASDAQ 100 (the screenshot below shows the chart view):

buy index funds on etoro

 

 

2. Click the blue 'Trade' button:

nasdaq index etoro

 

3. Set order details

Note the size of our position is $1,210 and with x2 leverage total exposure rises to $2,420. Set the stop loss. eToro by default opens the dealing ticket with a -50% stop-loss setting. We will move that up to limit losses (20% of position) to around $250 instead of $610.

We will leave take profit at $605.

nasdaq stop loss etoro

4. Go to portfolio view to see your trade

Go to portfolio view by clicking on the button in the grey navigation bar on the left. This view shows you the executed orders. See Nasdaq buy second in the list:

nasdaq index buy etoro portfolio view

 

Best Tracker Funds 2021 - Conclusion

Tracker funds are convenient and powerful ways for investors to gain exposure to a basket of shares and other instruments. They are also cheap ways to buy a large portfolio of shares without the cost of trading each individual holding. For easy of use, value for money and its innovative features such as CopyPortfolios and CopyTrading, we place eToro as the number one broker for buying tracker funds in the UK.

Fee for ETF dealing Share CFD Commission Annual management charge Deposit Fee Withdrawal Fee
eToro FREE 0% None 0.5% FX fee $5
Hargreaves Lansdown £11.95 to £5.95 N/A Starts at 0.45% None None
Fineco £2.95 0% 0.25% None None

FAQs

How do tracker funds work?

Tracker funds either physically (but the actual holdings of the index) or synthetically (buy derivatives) that replicate the performance of an underling index.

Whats the difference between a mutual fund tracker and an ETF?

An ETF trades like a share while a mutual fund is priced once a day. A share reflects a fixed capital structure while a mutual fund issues units as new investors enter and are therefore known an open-ended instruments.To sell a mutual fund tracker you redeem the units by instructing the fund manager to liquidate you units and give you the cash, while with an ETF you simply sell the shares on the open market.

What can a tracker fund track?

A tracker can replicate an index from all asset classes, but historically have been most popular with investors seeking to track a major stock index.

How much do tracker funds cost?

This will depend on the type of instrument. Fees can be anything from 0.08% to 0.60%.

What companies issue tracker funds?

Tracker funds are issued by financial institutions such as fund management firms and investment banks and some brokerages too.

 

Gary McFarlane

About Gary McFarlane PRO INVESTOR

Gary was the production editor for 15 years at highly regarded UK investment magazine Money Observer. He covered subjects as diverse as social trading and fixed income exchange traded funds. Gary initiated coverage of bitcoin and cryptocurrencies at Money Observer and for three years to July 2020 was the cryptocurrency analyst at the UK’s No. 2 investment platform interactive investor. In that role he provided expert commentary to a diverse number of newspapers, and other media outlets, including the Daily Telegraph, Evening Standard and the Sun. Gary has also written widely on cryptocurrencies for various industry publications, such as CoinDesk and Inside Bitcoins. Gary is the winner of Cryptocurrency Writer of the Year in the 2018 ADVFN International Awards.

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