8. How Trackers Track

An index tracker attempts to match the performance of a particular 'index' of shares. In other words, it attempts to follow the ups and downs of the index as closely as possible. It does this by exposing itself to the performance of the shares in that index. But how exactly does it do this?

Let's imagine that the following are the biggest five companies on a theoretical stock market and that we want to create an index of them.