The trouble with index-tracking funds

Index-tracking funds are great, cheap alternatives to their overpriced active cousins. But they aren’t flawless, says John Stepek.

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Newly promoted stocks soon flap back to a lower perch
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We're fans of cheap index-tracking funds. Index trackers simply aim to deliver the return on the underlying market index (less costs), rather than beat it. Yet they still do better than most of their actively managed peers (which do aim to beat the market), because their costs are so much lower. Given that it's so hard to predict which active funds will beat the market, investing in trackers makes a lot of sense to us.

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John Stepek

John Stepek is a senior reporter at Bloomberg News and a former editor of MoneyWeek magazine. He graduated from Strathclyde University with a degree in psychology in 1996 and has always been fascinated by the gap between the way the market works in theory and the way it works in practice, and by how our deep-rooted instincts work against our best interests as investors.

He started out in journalism by writing articles about the specific business challenges facing family firms. In 2003, he took a job on the finance desk of Teletext, where he spent two years covering the markets and breaking financial news.

His work has been published in Families in Business, Shares magazine, Spear's Magazine, The Sunday Times, and The Spectator among others. He has also appeared as an expert commentator on BBC Radio 4's Today programme, BBC Radio Scotland, Newsnight, Daily Politics and Bloomberg. His first book, on contrarian investing, The Sceptical Investor, was released in March 2019. You can follow John on Twitter at @john_stepek.