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Support for trackers &#39is based on misconception of markets&#39

Sandler&#39s view that trackers deliver better returns more cheaply than active funds is based on a limited understanding of the market and outdated past performance figures, claim IFAs.
Advisers say Sandler&#39s belief there is often no benefit in paying higher charges for actively managed funds stems from the bull market in the late 1990&#39s when trackers largely performed better than three-quarters of their stock-picking counterparts.
But they say the stockmarket over the next few years will look nothing like that of three years ago and will need the expertise of stock-picking fund managers to give investors hope of producing returns in a strong bear market.
They also rubbish Sandler&#39s view that institutional fund managers are better equipped than retail managers to actively manage funds, but welcome the recommendation that the distinction between mini and maxi Isas be scrapped.
Investment houses are also critical of the report.
Fidelity points out that that actively managed funds have broadly performed better than tracker over the past five years and questions Sandler&#39s belief that consumers lack knowledge, saying that investors are often very well informed.
Threadneedle asks how the industry can reconcile his recommendation that there should be more focus on the importance and process of asset allocation with his view on tracker funds, which do not allow for investors&#39 individual risk profiles.
Hargreaves Lansdown head of research Mark Dampier says: “Its barking mad to say trackers are better than active funds. Sandler is just using past performance to support that view. He is wrong to say institutional managers are better than retail managers – if anything, they&#39re worse.”
Threadneedle communications director Richard Eats says: “How does a tracker approach coincide with a risk-based approach? They can&#39t be broadly recommended to investors. You wonder how much of this has been driven by past bull markets.”

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