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3 index tracker funds for 2020 and beyond

We share three index tracker fund ideas we think are excellent options for passive investing.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

Index tracker funds can be a great way to invest. By aiming to copy the composition and performance of a stock market, they’re a simple, low cost and convenient way to gain exposure to a wide variety of companies. There are lots available, covering all the major stock markets, as well as bond markets and some specialist areas too.

Here we’ll look at three areas we think could provide long-term gains, although there are no guarantees, and our favourite tracker funds for investing in them.

This article is not personal advice. If you’re unsure if an investment is right for you, please seek advice. All investments fall as well as rise in value, so you could get back less than you invest.

1. Emerging Markets

The biggest economic growth in the coming years is predicted to come from emerging markets. The booms in China and India are well-documented, but other smaller countries like Vietnam, Egypt and Peru are also set to grow far more than developed ones.

Stock markets don’t always reflect economies though. Take 2019 for example. Emerging market economies grew more than twice as much as much as developed ones yet their stock markets lagged many major developed ones like the US, UK and Europe.

Emerging markets are higher-risk and their performance has tended to be more volatile than developed stock markets. So it’s understandable why some investors are nervous about investing in them after generally positive markets for an unusually long time.

We think the growth potential of emerging markets shouldn’t be ignored though. Investing in them as part of a diversified portfolio means you could capture their future growth potential. Limiting how much of your portfolio is invested in emerging markets means you’re not over-exposed to their volatile performance.

Our favourite index tracker fund for investing in emerging markets is iShares Emerging Markets Equity Index. iShares are part of Blackrock, the world’s biggest provider of tracker funds, so the fund benefits from the scale and expertise of such a big operation.

Asian companies from the likes of China, Taiwan and India make up most of the index. But there are plenty from other countries such as Brazil, South Africa and Russia too. In fact, there are plenty of companies in general, with over 1000 in the portfolio. As with many stock markets, the portfolio is dominated by large companies but there are also some higher-risk smaller ones too.

The fund’s available to HL clients for a 0.16% fund charge, plus the HL platform charge of up to 0.45% per year.

Annual percentage growth
Dec 14 -
Dec 15
Dec 15 -
Dec 16
Dec 16 -
Dec 17
Dec 17 -
Dec 18
Dec 18 -
Dec 19
iShares Emerging Markets Equity Index -12.0% 36.3% 20.6% -8.3% 15.8%
FTSE Emerging -10.3% 35.4% 21.1% -7.6% 15.9%

Past performance is not a guide to the future. Source: Lipper IM to 31/12/2019

Find out more about iShares Emerging Markets Equity Index inc. charges

iShares Emerging Markets Equity Index Fund Key Investor Information

2. UK

For several years there’s been a fog of uncertainty and worry over the UK due to Brexit. With a resounding victory for Boris Johnson’s Conservatives last month, based on their promise to finally leave the EU, that fog seems to be lifting. There’s much more to the UK stock market than how Brexit concludes. But if we avoid a messy or ‘cliff-edge’ exit from the EU it’s likely there’ll be more investor confidence in British businesses. And that could be a shot in the arm for the UK stock market, although still nothing is certain.

The UK is full of world-class businesses, and is one of the best markets for companies paying healthy, growing dividends. Not only that, most of the money made by companies on the UK stock market comes from abroad, so it provides lots of international exposure. So regardless of politics, we think the UK’s long-term prospects for income and growth are bright.

Our preferred tracker fund for investing in the UK is Legal & General UK Index. It aims to closely mirror the performance of the FTSE All-Share, which covers nearly the entire UK stock market. It invests in over 600 companies of all sizes, although like the index, the biggest companies dominate the portfolio. These include the multinational banks, oil & gas majors and global pharmaceutical firms.

Legal & General have done a good job at matching the index’s performance. Part of how they’ve achieved this is by keeping costs low. There is a 0.04% fund charge for HL clients, and HL’s platform charge of up to 0.45% a year also applies.

Annual percentage growth
Dec 14 -
Dec 15
Dec 15 -
Dec 16
Dec 16 -
Dec 17
Dec 17 -
Dec 18
Dec 18 -
Dec 19
Legal & General UK Index 1.3% 15.9% 13.1% -8.9% 19.1%
FTSE All-Share 1.0% 16.8% 13.1% -9.5% 19.2%

Past performance is not a guide to the future. Source: Lipper IM to 31/12/2019

Find out more about Legal & General UK Index inc. charges

Legal & General UK Index Key Investor Information

3. Global

While we think the UK offers investors great long-term potential, the UK stock market makes up only a small part of the global stock market. There are also industries that don’t feature much in the UK stock market, notably technology. Investing globally means you don’t miss out on many opportunities, and gives you exposure to lots of other countries’ stock markets.

The US makes up around half of the global stock market, so investing globally means you get lots of exposure to the world’s strongest economy. And while the UK offers relatively few technology companies, you’ll be getting plenty by investing global. Companies like Microsoft, Alphabet (Google) and Facebook make up many of the top ten largest positions of the global stock market.

The Legal & General International Index Trust is our favourite global tracker fund. It aims to closely mirror the FTSE World (ex UK) index. As it doesn’t invest in any UK companies, it can be useful if you already invest in a lot in the UK. Most of the companies are from developed countries like the US, Japan and Switzerland, but there are also some from higher-risk emerging markets.

There are well over 2,000 companies in the portfolio, so you’ll get plenty of diversification. The dominance of the biggest US firms though is something to be aware of. Just the top five companies, for example, make up more of the fund than any single country bar the US.

The fund is available to HL clients for a fund charge of 0.08% plus the HL platform charge of up to 0.45% per year.

Annual percentage growth
Dec 14 -
Dec 15
Dec 15 -
Dec 16
Dec 16 -
Dec 17
Dec 17 -
Dec 18
Dec 18 -
Dec 19
Legal & General International Index 3.9% 30.3% 12.7% -4.2% 23.5%
FTSE World ex UK 4.8% 30.4% 13.5% -2.7% 23.1%

Past performance is not a guide to the future. Source: Lipper IM to 31/12/2019

Find out more about Legal & General International Index inc. charges

Legal & General International Index Key Investor Information


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    Important notes

    This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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