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Big firms to move into enhanced trackers

Legal & General Investments managing director Simon Ellis says he expects a number of large asset managers to move into the enhanced tracker sector in the next couple of years.

Ellis says some big providers do not want to compete with pure index and ETF offerings already in the marketplace but warns he does not see a huge upside to “enhanced indexing”.

Enhanced trackers are typically products that follow an index but add active bets on top to beat the index.

He says: “The history of enhanced products on a global scale has been poor. The vast majority of these quantitative models use the same factors, which means that if things go wrong, all these products go wrong at the same time. Such products are over-complicating simple investor aims to get exposure to the market as cheaply as possible.

“A lot of the bigger guys are going to come out with these products that charge between passive and active fees to add small layers of performance when things go right in the markets. There is little reward for IFAs or investors.”

Ellis also predicts the proportion of investments into index trackers will jump in the next five years from around 3-4 per cent to 10 per cent, a move he says will be down to more than just cost. He says: “I expect a lot of advisers will say it is easier to manage passive rather than active funds.”

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