The relatively recent boom in ‘smart beta’ or ‘enhanced beta’ offerings has muddied the waters further. These products, which add filters or tilts to a standard tracker, in many cases have fees nearer those of a typical active fund. While it is fair to ask slightly more for a ‘smart’ tracker which has required a more complex design and set-up, the fee should still be much closer to 6bps than the 143bps end of the scale.
“The asset management industry has taken steps to lower charges for their passive funds to reflect a more competitive market, and this is to be applauded,” said Victoria Hasler, Square Mile’s head of research. “Nonetheless, there still remains great disparity and given that the opportunity for passive funds managers to reduce tracking error and thereby enhance returns is limited, there can be no justification for maintaining high fees.”
