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Impact Investing

IPE special report May 2018

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'Active' managers head for the index closet

UK – Active investment managers are increasingly acting as closet index-trackers, according to a study by performance measurement firm, the WM Company.

The study shows that over 40% of active UK investment houses managing unit trusts actually shadow-track the stock market.

In the past five years, the report shows that more than 40% of active unit trusts show a mean deviation from the benchmark index of between 0 and 3%, while a further 34% of funds deviate from the index by between 3 to 6%.
Three quarters of funds (127 out of 168) failed to beat the FTSE All Share - after charges, over the five years to the end of 2000, the report says.

The WM research analyses UK equity unit trust performance in the UK all companies sector, comparing it with the performance of the FTSE All Share index.

“ The truth is that many fund managers are pocketing the higher fees and just shadowing the stock market – holding a true tracker fund as your core portfolio will be a lot more productive than paying over the odds for the 40% of active funds that are ‘closet tracking’,” says Gordon Maw at Virgin Direct, which commissioned the WM study.

Over the last 20 years the top performing trust achieved an annualised period return of 20.4% per annum, while the poorest returned 12% a year.
Furthermore, the FTSE All Share index return (16% a year) over the full 20-year annualised period is in the top quartile of trust returns.
Of the 55 funds with a full 20 years of data 11 outperformed the index after costs, and 13 before costs, says the report.

The report is the third from WM Company, comparing equity unit trusts.

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