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Trackers can put up to 20% in one stock

Tracker funds can invest up to 20 per cent in a single stock with the new FSA rules.

Firms will get more freedom in replicating the composition of an index. In certain circumstances, single stock holdings of 35 per cent will be allowed.

Firms were unable to hold stocks to reflect the true composition of an index if single holdings exceeded 10 per cent, although in the past, derivatives have been used to duplicate investment profile.

The changes come into force this week, more than a decade since Europe-wide negotiations on the second round of Ucits began.

IFAs warn the move increases the volatility of trackers which the Sandler review promotes as investments for consumers to buy without advice.

Bates Investment Services head of research James Dalby says: “The old 10 per cent rule seemed generous to start with. Going beyond 10 per cent means you really start to lose the benefit of diversity.”

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