Bestinvest says
This fund provides low cost passive exposure to the UK equity market. The FTSE All Share index gives investors substantial diversification including some international exposure, though it can be concentrated by company size - the multinationals of the FTSE 100 make up around 85% of the index. By using a tracker fund investors remove the possibility of underperformance, though conversely they miss out on the benefits of a successful active manager.
The fund aims to match the returns of the FTSE All Share index as closely as possible, with minimum tracking error. This index is made up of the FTSE 100, the FTSE 250 and FTSE Small Cap indices - over 600 companies in total. To achieve the objective the fund manager uses a technique called "partial replication", holding all of the shares in the FTSE 350 (FTSE 100 + FTSE 250) but only a sample of the smaller companies. By using "optimised sampling" he aims to replicate the sector and market capitalisation balance of the FTSE Small Cap index and hence give similar performance characteristics, but to avoid the dealing costs involved in holding all of the smaller companies.
Though primarily an equity fund, the manager will also use futures, a type of derivative which provides liquid exposure to the whole of the index. These are used to manage cash balances in the fund - by buying and selling futures the manager can regulate market exposure in response to inflows and outflows without the costs involved in trading all of the shares in the portfolio. The fund is managed on a purely technical basis.