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80% of funds are following a benchmark

More than three-quarters of UK funds are managed under contracts which require them to track an index or stay close to a specific benchmark, according to the Investment Management Association.

An IMA report, based on a poll of 55 fund managers, reveals that around 60 per cent of assets are managed with a single tracker mandate while 21 per cent are managed against a customised benchmark. This means that less than one-fifth of fund manager investments are true stock picks.

Despite the fact that trackers perform poorly in bear markets, the study estimates industry funds under management have risen by 50 per cent to £1,934bn in the five years to June 2002. The IMA says 30 per cent is managed by the top five groups while 49 per cent manage £20bn or less.

Assets managed by life company subsidiaries account for 34 per cent of the market while fund firms owned by retail or investment banks comprise 36 per cent. Stand-alone fund managers manage 24 per cent.

The study shows how much institutional business continues to dominate UK fund management. Two-thirds of assets are pension or insurance funds, with equities accounting for 54 per cent of assets under management. Bonds account for 24 per cent while money market and alternative asset classes make up the remainder.

IMA head of statistics Dorian Carrell says: “A lot of funds managed against a single benchmark simply have institutional investors who are being more specific. We are impressed with how much business fund managers have done.”

Michael Philips proprietor Michael Philips says: “It is nice to see the industry come clean. Investors are becoming increasingly disgruntled with not getting the active management they are paying for the diversification they expect.”

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