Best Tracker Funds – Forget Single Stocks

best tracker funds

The Best Tracker Funds

** Updated October 2019 **

Let’s get right to the point. Buying the best tracker funds was the answer to all my investing dilemmas. Forget what your grandad told you. You know, the advice about accumulating a financial adviser controlled unit trust or share portfolio filled with Shell, Marks & Spencer, Rolls Royce and Lloyds Bank. You can’t blame grandad because that is what his trusted financial adviser told him to do; the same adviser who was paid handsomely from trading commissions and annual management fees.

I understand financial advisers have to make a living, but no one says you have to fall into the same fee-paying trap your grandad fell into. I believe there is a time tested investment strategy that greatly reduces risk, emotional swings and fees while providing healthy returns.

Choose the best tracker funds instead.

“There seems to be some perverse human characteristic that likes to make easy things difficult.”

– Warren Buffett

Warren Buffet’s words are extremely insightful. Humans love to complicate things, especially when it comes to investing. The investing world is complicated by design after all.

So why choose the best tracker funds? Three reasons. Index tracker funds have low fees, they outperform virtually all managed funds over a very long period of time and they are tax-efficient.

I once spoke with a financial adviser who argued I was wrong about tracker funds and told me that you get what you pay for with actively managed funds. I respectfully told him I disagreed, presented some facts to which he responded, “Well, people don’t want tracker funds, they are too boring”.

Any financial adviser who advises you to buy managed funds might be trying to separate you from your money by way of management and trading fees. There are countless professional investment fund managers who have lost money year after year and most managed investment funds have underperformed the index markets since inception.

But ingenious branding and expensive ads campaigns continue to lure new customers into thinking these managed funds somehow perform better. Historical stock charts show otherwise.

Did you know there are over 29,000 unit trust funds available to UK investors with more being added daily? With a tiny percentage of these funds outperforming the indexes, how could anyone possibly pick the correct funds, let alone understand them? Another issue is one fund might perform gloriously one year while the following year, it could fall flat on its face due to the fund manager picking the wrong shares.

Do you know some of the mega-funds hold the same investments but charge different fees? For decades, stock funds were shrouded in hidden fee mystery until the Government finally said enough and forced fund companies to be fee transparent.

The financial services world is complicated for a reason because if it weren’t, very few people would need financial advisers.

Previously, I wrote an article about why you should avoid checking share prices and avoid buying single company stocks because it’s too risky.

So if not single stocks, then what?

The answer is to buy the best tracker funds, also known as index tracker funds. They are simple, have historically outperformed nearly all managed funds long-term and most importantly, they have low fees, low turnover and are tax-efficient because of the infrequent trading that lowers capital gains tax actively managed funds face.

When you start looking for the best tracker funds, the financial services will be out to dissuade and confuse you with a myriad of options designed to have you running back to your trusty financial adviser to buy managed funds. By the way, no one needs a financial adviser to buy index trackers.

So how do you know which are the best tracker funds to buy?

Firstly look for low cost and simplicity. My best tracker funds list is very short as my entire share portfolio exists of just two tracker funds:

Best Tracker Funds #1
1. Vanguard US Equity Tracker Fund

June 23rd, 2009 Launch Price: £100
October 18th, 2019 Price: £502.08
Annual Dividend Yield: 1.24% (October 18th, 2019)

Annual Management Fee: 0.10%
Purchase Fee: 0%
Exit Fee: 0%
Market Allocation: 100% U.S. stocks
Risk Level: 5/7
Total Assets: £4.8 billion
Total Stocks In Funds: 3400+
Benchmark: S&P Total Market Index

Where To Buy: Vanguard UK or most trading platforms
Min Investment: £500 directly from Vanguard, 1 share from other platforms

This U.S. Equity fund tops my list of the best tracker funds because it holds over 3400+ stocks, everything from Apple to Smuckers. The fund tracks the S&P Total Market Index and includes stocks from the S&P500, Dow Jones and Nasdaq. In other words, the fund tracks the broad equity market including large, mid, small and micro-cap stocks.

The fund purchases stocks in a weighted format. For example, the largest weighted stocks are Microsoft and Apple which consist of approximately 6.5% of the whole index, so the tracker fund owns the same percentage of its holdings in Microsoft and Apple stock. This continues all the way down to the smallest company which represents 0.00001% of the index.

The beauty of this type of fund is that you benefit from diversification and company growth and you receive a dividend yield. You can take the dividend yield as a cash payment (Income Fund) or you can reinvest dividends (Accumulation Fund).

Vanguard’s US Equity tracker fund is wonderful for diversification because the performance of one company won’t have a huge effect on the total market, therefore offering greater risk protection. Yes, the fund will perform poorly in poor market conditions, but so will nearly all managed equity funds.

The beauty of passive index trackers versus managed funds is that you don’t have to gamble on being able to choose one of the few managed funds that can outperform the index. Take Neil Woodford’s rise and fall as a lesson in managed fund avoidance. Instead of trying to pick winners from 29,000 unit trusts, pick one tracker fund that owns a diverse array of thousands of stocks.

The Vanguard fund is valued in U.S. dollars so you do have some currency risk, but the pound has historically favoured well against the dollar, (I expect the £ to recover somewhat post Brexit).

So why not buy a FTSE tracker?

The FTSE 100 is too small and not diverse enough for my liking. At one time, BP, Shell and HSBC comprised almost 25% of the FTSE 100. That meant if anything happened to one of these three companies, the FTSE as a whole suffered. Personally, I prefer to be as diversified as possible.

The FTSE 100 has also historically underperformed the USA’s S&P500 by large percentages:

Best Tracker Funds

With stock market returns, all we can look at is history and while history is no indicator of the future, you can see how badly the FTSE has lagged behind the S&P500. That being said, some people are only comfortable buying UK investment products, so always do what is right for you.

And why not a global index tracker?

This chart shows how much the Vanguard Global Equity Index Fund has underperformed the S&P500 index over 40 years:

Best Tracker Funds

Best Tracker Funds #2
2. Vanguard Global Bond Index Fund

June 23rd, 2009 Launch Price: £100
October 18th, 2019 Price: £158.35
Annual Dividend Yield: 1.84% (October 18th, 2019)

Annual Fee: 0.15%
Purchase Fee: 0.20%
Exit Fee: 0%
Risk Level: 3/7
Total Assets: £11 bn
Total Bonds In Fund: 10000+
Benchmark: Bloomberg Barclays Global Aggregate Float Adjusted Index Hedged

Where To Buy: Vanguard UK or most trading platforms
Min Investment: £500 directly from Vanguard, 1 share from other platforms

This global bond is #2 on my best tracker funds list because the fees are low and the fund invests in thousands of world government and corporate bonds. It’s the ultimate in bond diversification.

Bond funds have their naysayers as they won’t make you rich and are more boring than your grandma’s knitting lessons. So why own a bond fund? I own them because they can act as an insurance policy against stock market corrections.

For example, the U.S. equivalent Vanguard Total Bond Fund gained 3.45% during the 2008 market crash while most managed equity funds lost 45%. When markets are falling, you can exchange some of your bond fund holdings into stock funds when the worst is over. Think of bond funds like insurance, you hope you won’t need them but you’ll be glad you have them when the markets are falling out the sky.

So why not a UK bond fund?

A UK bond fund is higher risk than a global fund because it is far less diverse. For example, Vanguard’s UK Government Bond Fund only holds 58 bonds versus the 10,000+ bonds in the Global Fund.

Here are the return comparisons both funds launched in 2009:

Best Tracker Funds

While the UK bond fund has outperformed the global fund since 2009, I would expect the higher risk of the UK fund to level out long-term returns over a longer sample size. Also, remember that interest rates have been highly volatile since the 2009 property crash resulting in unusual bond fund returns that have since tapered off.

Why Vanguard?

Customers have entrusted over $5 trillion to Vanguard making them one of the largest fund companies in the world. Aside from Vanguard’s stability and reputation, company founder Jack Bogle was the man responsible for launching the very first index tracker fund back in the 1970’s.

Vanguard has a long history of low cost investing. Other companies offer low fees as an introductory rate, then quietly hike their fees. If you do invest in a company other than Vanguard, pick the companies with the lowest fees as most offer identical products.

There are other companies that offer index trackers such as Fidelity, just be wary of fees.

Best way to buy trackers

Since everyone has different circumstances and needs, use the Compare Fund Platforms tool to see which brokerage is the most cost-effective.

You can invest directly with Vanguard but each fund has a £500 minimum initial purchase. If you want to purchase less than £500 in each fund to start, the most economical way is to set up an account with a discount brokerage such as Iweb because each trade is only £5. After you reach the £500 fund minimums it’s more cost effective to transfer to Vanguard if your current trading platform doesn’t charge you transfer fees.

Buying through a discount broker will save you lots of money over the long run because you can avoid annual platform fees. For example, Charles Stanley charges an annual 0.25% platform fee (balances under £250,000) which really adds up over the years even though it doesn’t sound like much.

If you don’t trade often and your account balance is under £80,000, you’re better off investing directly through Vanguard since their annual account fee is only 0.15% (you can read more about this here). Low fees are crucial to successful long-term investing.

You can also buy trackers in the form of ETF’s or Exchange Traded Funds. I personally don’t buy these because ETF’s can be traded like stocks and I don’t like the temptation of easy liquidation.

So that’s how I invest in the stock market; two tracker funds and I’m done.

How much to invest?

So how do you decide how much to put into each type of the best index trackers? Stock tracker funds are much riskier than certain bond tracker funds but the payoff is greater. For example, here’s how Vanguard’s stock tracker and bond trackers performed during the financial crisis between May 2008 and May 2009 (I used the US equivalent funds as the Vanguard UK funds didn’t exist at the time):

As you can see the stock index fund suffered far worse losses than the bond fund. A stock tracker fund will fall as much as the entire market falls whereas a bond fund tends to be less volatile. It is suggested you take your age and use that as the percentage of bond funds you should own.

Example: A 35 year-old would own 65% stock index funds and 35% bond index funds. You can adjust that based on your risk tolerance. I’m in my 40’s and own about 35% in bond funds. As you get older you can adjust this as needed (we call this rebalancing). A 20 to 30-year-old can afford to take more risk since they have time to rebound if disaster strikes, so their portfolio might be 90% stocks and 10% bonds.

When considering bond trackers, I avoid strictly corporate bond funds as these bonds are debt held against private companies and don’t pay high enough returns to warrant the extra risk.

This article highlights my personal preferences. Take time to research the trackers as there are many offered by many different companies. Make sure you pay attention to what the trackers hold in their portfolios and the fees. As always, you should never invest in anything you don’t understand.


Consider kissing those risky single stock portfolios goodbye and buying and holding the best tracker funds. This strategy is by far the least risky and most cost-effective way to achieve retirement wealth. Even the greatest investor in the world, Warren Buffet, agrees:

“The trick is not to pick the right company, the trick is to essentially buy all the big companies through the S&P 500 and to do it consistently and to do it in a very, very low cost waY”

Warren Buffet
CNBC Interview May 2017


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Disclaimer: This article does not take into consideration your personal circumstances and is for information purposes only and should not be regarded as investment advice. Opinions expressed are my opinions based on my own personal experiences, investing my own money. You should never invest in anything you don’t understand. 



  1. Excellent article – really useful to this 50 something who is in the midst of having to actually wake up and figure out his financial life… Do you have a “subscribe” option so I can get articles as you post them?



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