While fund and wealth managers alike up talk up benefits of the emergence of a new stockpickers market, with volatile times to come, the reality is many investors remain happy to follow the index route to returns.
Don’t get me wrong, modern wealth managers are much more concerned with how they can blend both active and passive strategies within a portfolio rather than pitting the two in opposition.
However, as Rayner Spencer Mills Research (RSMR) proves with the launch of its new passive funds rating service, cost concerns in particular are pushing investors the way of Vanguard, HSBC, L&G, Fidelity BlackRock, State Street and co.
This is backed up by the latest statistics from the Investment Association, which says tracker funds made up some £96.5bn of retail funds management as at the end of January 2015.
These funds’ overall share of industry funds under management was 11.3%, compared with 9.7% 12 months earlier.
| AUM (£bn) | % of industry total | |
| 2010 | 41.0 | 7.0 |
| 2011 | 43.0 | 7.4 |
| 2012 | 59.4 | 9.0 |
| 2013 | 75.5 | 9.8 |
| 2014 | 93.2 | 11.2 |
“As we’ve grown we have found a number of clients have wanted us to do hybrid portfolios and passive portfolios, part of that general trend to cut costs,” says Ken Rayner, director at RSMR.
“Post the financial crisis, there are schools of thought that holding on to a market return is just as likely to give you a decent return as something that is more active. That’s built up a following, while new entrants like Vanguard have struck a chord with a number of investors particularly its prices of 7-10bps for funds. There are a number of factors from different directions which have lifted the use of passives.”
RSMR has scored the passives universe on four key aspects: the business behind the funds; people and resources; the process, whether it be sampling of stocks or full replication; and the product itself in terms of tracking error, fees etc.
This has resulted in a list of 32 rated funds from L&G, Vanguard and BlackRock. The latter – also the parent of iShares – saw passive funds account for over 80% of its gross sales last year.
The rise of ETFs is another factor that has to be taken into account with providers reporting record inflows into many products, and a wiliness to launch more.
Cast your mind back a few years to when ETFs where first launched in the UK and some predicted the death knell for standard tracker funds, but it is clear now there is space for both.
“I think accessibility is one thing that has cut back investors’ ability to use ETFs, while looking at individual costs the differences between low-cost trackers and ETFs is not that great,” adds Rayner.
“Also, the advantage of ETFs in being able to be traded all the time possibly pushes people more towards a trading approach, whereas we are more of the view that people should be long-term participants in markets whether that is through active or passive funds.”
