Investing Basics: ETFs and Tracker Funds

Passive funds in their simplest form offer highly efficient and transparent vehicles through which investors can access a market. But can introduce an element of counterparty risk

Kenneth Lamont 13 April, 2015 | 2:00PM

The rise of passive investing in Europe is built on the realisation that active managers struggle to outperform their benchmarks over time. While this trend reflects a deep underlying shift in investor behaviour, several common misconceptions about passive funds remain.

When indices are costly to replicate a fund may choose to buy a sample of the underlying holdings

All passive funds have the same objective, namely to track an index as efficiently as possible, but how each fund achieves this varies; and it is key that the different approaches are understood when selecting which passive vehicle to invest in. Some appear more complex than others.

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The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

About Author

Kenneth Lamont  is a passive funds research analyst for Morningstar Europe.

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