Are your tracker funds going where you think they are?

Less red tape is attracting many foreign firms to list on Britain's stock exchange. But with less regulation, how do you know your index-tracking fund isn't tracking more than you bargained for? Paul Amery explains.

Always pay attention to what's in your tracker fund. For example, the FTSE 100 sounds like a benchmark of UK companies and, therefore, of the British economy. But it isn't. Of its earnings, 70% are now estimated to come from abroad. And that trend is accelerating.

There's been a recent flood of foreign companies seeking to list on London's stock exchange. To encourage large corporations to relocate here, British regulators have waived the usual requirement that a quarter of a listed firm's shares must be freely tradeable (ie, not tied up by large controlling shareholders). FTSE, the UK-based index compiler and publisher of Britain's most popular share indices, has been willing to admit large companies with as little as 5% free float' (industry jargon for freely tradeable shares) to its benchmark indices.

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Paul Amery

Paul is a multi-award-winning journalist, currently an editor at New Money Review. He has contributed an array of money titles such as MoneyWeek, Financial Times, Financial News, The Times, Investment and Thomson Reuters. Paul is certified in investment management by CFA UK and he can speak more than five languages including English, French, Russian and Ukrainian. On MoneyWeek, Paul writes about funds such as ETFs and the stock market.