Released late last year, the regulator’s Asset Management Market Study highlighted concerns over weak price competition, fee ‘clustering’ on actively managed equity funds, and poor economies of scale.
These are all valid issues, though while passive funds have predictably seen an uplift in inflows, some commentators worry that those pursuing an active management philosophy have been “tarred with the same brush”.
“The FCA’s criticism is that many active funds have failed to beat their benchmarks after costs, and benchmarks in the FCA’s case means indices,” says Peter Askew, fund manager and CEO at wealth manager T. Bailey Asset Management.
“The key point is – who said an index was an appropriate starting point for portfolio construction and measurement? It isn’t and as we have said many times before, an index is little more than a reference point. It is NOT a portfolio construction mechanism.”
John Husselbee, head of multi-asset at Liontrust Asset Management, believes that once you have decided the “divisions of your spoils between the asset classes” then “indeed benchmarks are a good place for most people to build portfolios with”.
He continues: “I agree that it is a low-cost starting point which should provide you with adequate returns over the medium term.