Laith Khalaf, senior analyst at Hargreaves Lansdown, said Vanguard’s recent reduction in charges shows “the passive price war is alive and well” and agreed people may look for high quality active funds in 2017 and cause a bigger polarisation in the fund market.
“Passive funds have gone from strength to strength in recent years and we expect a continued polarisation of the UK funds market, as investors plump for low cost tracker funds at one end of the spectrum, or high quality active funds at the other.
“The middle ground, inhabited by closet trackers, is likely to get increasingly squeezed as this trend develops. There are still billions of pounds stuck in mediocre active funds, which we can expect to gradually run down as investors wake up and smell the fact they can get better value elsewhere.”
Ultimately, market conditions in 2017 could offer the perfect environment to talk to clients if nothing else, Hasler said: “We have to be honest with clients and manage their expectations – volatility could be a good opportunity to talk about time horizons and to ask what really do you want to get out of your investment.”