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&#39Closet trackers costing £125m in excess fees&#39

UK equity investors could be throwing away up to £125m a year in excess management fees by investing in closet tracker funds, according to Legal & General.

L&G&#39s research has found that UK retail investors have around £50bn in actively managed funds with annual management fees of at least 1 per cent.

It claims many of these are closet trackers, which only aim to match an index while occasionally injecting an element of outperformance. L&G&#39s tracker has an AMC of 0.5 per cent.

If investors switched to overt trackers, which have lower AMCs than actively managed funds, they would save around £125m a year, claims L&G. It points to the five year period to end of 2002, in which its UK tracker fund outperformed 68 per cent of actively managed funds.

L&G believes this points to the existence of dozens of closet trackers, which it says often underperform because of high initial and annual charges.

Retail investments marketing director Claire Stracey says: “In a low inflation and low nominal return environment keeping management fees as low as possible is a sensible policy for all investors. Investors need to ensure they are not paying high charges on funds that are closet index trackers.”

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