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Passive funds fail to ignite

Less than a third of advisers believe investors will increase their exposure to passive funds as the core of their portfolio, according to research from Ignis Asset Management.

It found that 42 per cent of IFAs think active funds will continue to form the majority of an investor’s portfolio while 28 per cent say the conventional approach of using active funds to complement a tracker-based core will increase in prevalence.

The survey, which polled a total of 220 advisers, also shows that almost nine out of 10 feel that investors do not fully understand the risks associated with passive funds, with nearly 30 per cent stating they are “significantly riskier” than is typically acknowledged.

Less than a quarter of respondents say they expect to increase their usage of passive funds on the back of the retail distribution review. Almost nine in 10 advisers feel that closet trackers will come under further pressure after the retail distribution review and more than 78 per cent believethat benchmark-constrained active retail funds are becoming less relevant in today’s market.

Ignis Asset Management marketing director Rob Page says: “For fund groups committed to quality active management, the news is more encouraging, as most advisers believe quality high-alpha managers are more likely to generate superior performance in the long run. But it is clear the time is up for fund groups charging active fees for benchmark-hugging returns.”

HSBC head of UK wholesale Andy Clark says: “Our research has shown that trackers will grow in importance in the next few years as costs are scrutinised after the RDR. Successful active funds will continue to flourish but those that do not will face questions on cost.”

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  1. What a surprise! A company promoting active fund management publishes a survey purporting to support active fund management.
    What people fail to realise is that it is not actually just about passive v active. That is very much a secondary decision. The key issue is to get the asset allocation right given the clients requirements and risk profile. After that, it is a case of selecting the most cost effective method of populating each asset class and the evidence (not to be confused with marketing hype) overwhelmingly supports the use of passive/tracker type strategies.

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