Henderson New Star director of retail business development Stewart Cazier has revealed the firm is considering launching tilted trackers and he expects other fund firms to follow suit.
He believes the retail distribution review will prompt investment companies to launch these products as clients will pay a fee for using a platform, meaning there is no barrier to passives and trackers being distributed via platforms.
Cazier says firms will look to offer products that follow an index but add active bets on top to beat the index by 1.5 to 2 per cent.
He says: “On the one hand, there is a challenge to actively managed companies because the index-hugging high-beta product will be untenable but it does mean these tilted tracker funds may come to the fore.
“The problem is that at the moment when you have got to generate commission payments and platform fees, the majority of any gain is eaten out of the pricing. However, if a product is sold at 75 basis points rather than 25 basis points but is offering 1.5 to 2 per cent more gross performance than a tracker, then naturally the punter is going to pick that over the traditional tracker.”
Cazier says enhanced trackers are an obvious response but warns that little can be done until the final RDR rules are published.
He says: “It all depends on whether the FSA turns around and says that any payment made to a platform from a fund manager is commission on the back of the RDR. Without that, trackers will continue to struggle.”
CandidMoney.com founder Justin Modray says: “We are already seeing a few fund of funds’ providers moving into the area. Of course, the margins increase for the client and the provider but beating the index regularly can be a difficult thing to do, so providers need to be careful who the product is being offered to.”