There are two ways to invest in index trackers – Mutual Funds and ETFs.

What is an index tracker?

 

An index reflects the value of the stocks of the companies featured in the index.

 

The price of shares in an index fund will vary in direct proportion to the value of the stocks contained in the index.

 

In other words the price of a share in an index fund directly tracks the index.

 

At the present time there are over three hundred and fifty indexes worldwide and still increasing.

 

They cover a large number of market sectors from major indexes such as the Dow, S&P 500, Hang Seng (Hong Kong), Nikkei (Japan) FTSE and FTSE250 (LSE) to more obscure sectors like the Dow Jones Precious Metal Index (*DJGSP), the World Uranium Eur Index (*URAXP), the World Uranium USD Index (*URAXD) and Luxor Gold Bullion Secs (GBS:LSE).

 

Think of a market sector and it is more than likely that there will be a tracker fund associated with it.

 

The S & P 500 index is considered to be the benchmark for US equity performance and is the oldest ETF tracker, known as the Spider or SPDR (Standard &Poors Depository Receipts) ticker symbol Amex:SPY.

 

It reflects the performance of all 500 companies in the S&P 500.

 

The Advantages of an ETF tracker

 

Unlike a Mutual Fund, ETFs are traded in the same way as any other stocks, that is to say that a brokerage account is needed, buying and selling can take place at any time during the exchanges opening hours, shorting, leverage, options, day trading, etc. are available and of course standard brokers commission is payable.

 

Because a tracker fund reflects the value of the shares of the companies featured in the index and change proportionately, no expensive salaried analysts are required so management fees are low, and should not exceed 0.4% annually.

 

Because a tracker ETF represents a basket of stocks, the risk is spread across the constituents of the index, so that picking a stock from a sector that you feel bullish about is not necessary, and avoids the chance of making that one bad pick from an otherwise profitable group of companies.

 

Depending on the jurisdiction, ETFs are likely to be more tax efficient than Mutual Funds as they have lower distributions.

 

Investing in gold, silver or platinum group metal (PGM ETFs are about to be launched in London and Zurich) sectors and their miners via ETFs, (and not forgetting uranium and nuclear power) is a convenient way to gain entry into these commodities that we believe still have substantial upside despite the expectation in many quarters of a substantial correction taking place in stock markets generally in the not too distant future.

 

Three more indexes in our sectors to look at:

• Amex Gold Bugs Index (HUI),
• CBOE Gold Index (GOX)  
• Philadelphia’s Gold and Silver Index (XAU)

 

Note tha uraunium futures start trading on NYMEX this coming Monday May 7th. Another reason to be bullish about the metal.

 

Do the homework and good luck.       

 

 

 

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