Tracker funds grow slowly in popularity

Index tracker funds are growing slowly in their popularity with UK investors.

The latest IMA figures for July 2013 show net retail sales of £352m for tracker funds, with total assets under management reaching a record £71.7bn at the end of July.

This means that tracker funds have a 9.6% share of total assets under management with UK investors.

Compare this to their 7.8% market share a year earlier, and you can see that they are growing in popularity, albeit slowly.

So, as things currently stand, nearly ten percent of investments are index trackers rather than actively managed.

The vast majority of investors continue to choose active fund management over the so-called passive approach to investing.

Despite all of the ‘evidence based’ arguments for index trackers, active funds remain the investments of choice for most UK investors.

As a firm of Chartered Financial Planners with an investment philosophy advocating the use of both active and passive funds, in the right circumstances, we are not surprised to see that index trackers are failing to gain dominance.

Comparisons between the active and passive fund management styles are often unfair.

It is unfair to include ‘closet trackers’ in the comparison of results between the two. These active funds might as well be passive, as they closely track the index or sector rather than make bold investment decisions to target the best results for investors.

Remove closet trackers from the equation, focus on active funds with a high ‘active share’, and any comparison between the two management styles tends to favour active management.

Another point of contention is costs.

We have seen studies in the past compare the net cost of investing with an index tracker with the gross cost (including advice and platform administration) of using actively managed funds.

Level the playing field – because index tracker investors still need to pay for platform administration (in order to access funds) and sometimes for advice) – and the argument on the basis of costs becomes less pronounced.

So while index tracker funds will gradually continue to become more popular with UK investors, we expect actively managed funds to remain the dominant choice.

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