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Passive portfolio from Scot Eq

Scottish Equitable has linked up with Merrill Lynch Investment Managers to establish life and offshore versions of its balanced passive pension fund, which has a four year track record.

The Scottish Equitable balanced passive life fund is available through the companys investment bond. Like the offshore version, the Scottish Equitable International balanced passive fund, it will invest in equities bond and cash for long-term growth but will achieve its equity exposure mainly through tracker funds. Both funds are benchmarked against the Lipper balanced managed pension sector average.

Tracker funds are designed to replicate the make up of the index they are aiming to track and Scottish Equitable believes this approach removes the risk of a fund manager making the wrong asset allocation or stock selection decisions. It is also a cheap way to access the stockmarket, which means Scottish Equitable can charge an annual management charge of 1 per cent.

Although it has a passive investment approach the Scottish Equitable balanced passive fund has an element of active management in that regional tracker funds are blended with other investments to reflect the Lipper sector average which acts as the benchmark. However, with some regional indices such as the FTSE 100 concentrated so that the larger stocks represent disproportionately large weightings, there may be little to distinguish the various tracker funds.

Also, despite the diversity achieved by investing in a mixture of asset classes, the potential drawbacks of a passive investment approach still remain in relation to equities. The underlying tracker funds will only rise when their benchmark indices rise and will also fall in line with the market, with no scope for the manager to beat the index.


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