Steve Allen, manager of AXA’s Elite Diversified Market Range of risk-rated passive multi-asset funds, has said the suite does not invest in ETFs because they are not the most cost-effective way to gain exposure to key markets.
The range was launched on 1 November and includes five risk-rated portfolios of passive funds designed to track a range of market indices, offering asset diversification cheaply.
Asset allocation is determined by a third party scholastic risk model from eValue. This is remodeled on a quarterly basis, and the investments are rebalanced accordingly.
With the exception of high yield, all the component parts are passive open-ended funds, from Blackrock and Legal & General, which track each of the respective markets.
But when it comes to ETFs, Allen said that the cost could be surprising.
"Although ETFs have a perception of being relatively low cost, using AXA buying power we can get much lower annual management fees on passive funds,” he explained.
“In addition, when you use ETFs you are paying brokerage commission and there is the bid offer spread. For operational reasons it’s also easier for us to use passive funds, which brings the cost down."
Across the board, passive funds are not always the best solution, though, and nor are they available across all asset classes.
Allen explained: "There is no cheap way to gain passive property exposure."
As a result the range does not invest in property.
Moreover, in the high yield sector, the fund could not use an open ended passive solution, so Allen is using a core active high yield fund.
This ruthless approach to cost cutting means the funds will have a usual annual cost of less than 0.5%.
The funds are available to investors in AXA Wealth’s Retirement Wealth Account, Investment Bond and Trustee Investment Plan products.
