What is a Smart tracker fund?

Most people will be aware of tracker funds that track an index (when investing), such as the FTSE 100 Index. But what is a ‘Smart tracker fund?’.                                                                        
“Smart” trackers are a relatively new type of investment. They are similar to standard low-cost trackers, but they apply some screens to the stocks they invest in, meaning they are not just investing in the index as it stands.                                                                                                      
Instead, they apply screens. One is to invest equally in all the companies in the FTSE 100 index. This means that rather than investing more of your money in the larger funds, it will split the money equally across all companies making up the index.                                                                 
One example is db x-trackers FTSE 100 Equal Weight Ucits ETF. However, the annual costs at 0.25pc are higher than a traditional tracker.                                                                                      
Another example of these “smart trackers” is the PowerShares FTSE RAFI 100 Ucits ETF, which is a very complicated name for a fund that weights holdings based on a number of different factors. Among these are the level of sales a company has, the dividends it pays out, and cash flows. It will then allocate more money to the companies that score highly in these elements.
Because of the companies that are doing well in these factors at the moment, the ETF currently has more money invested in financial and energy companies - so at the moment it does not eliminate the large amounts allocated to stocks such as Shell. This will change over time though.                                                                                                                                          
Smart trackers also come at a higher price - with this example costing 0.39pc, compared to around 0.07pc for a simple FTSE 100 tracker.                                                                                           
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