Passive funds refer to funds that follow the performance of an index, such as tracker funds and exchange traded funds. The investment strategy is different to actively managed funds, where the fund manager selects stocks with the potential to outperform indices or sectors. Actively managed funds have higher costs than passive funds, but do not necessarily beat stockmarket indices.
T. Bailey growth fund lite invests mainly in global equities and aims to outperform the IMA Global Growth sector over rolling three-year periods.
The underlying funds are passive, but the fund of funds structure enables the portfolio’s asset allocation to be actively managed. The roles of T.Bailey’s chief investment officer Jason Britton and assistant fund manager Elliot Farley are to ensure the regional weightings provide the best balance between risk and return as market conditions change.
The choice of the underlying passive fund is also important, with the concentration of indices, potential underperformance of trackers relative to their indices over the long term and costs to take into account.
The main share class on the T.Bailey growth lite fund has a total expense ratio capped at 0.99 per cent. This does not allow for IFA commission, but another share class with a higher TER of 1.49 per cent caters for this.
This fund provides an element of active management to complement the cost savings of passive investing, which could be attractive to investors, but its investment approach is not new. 7Im has been offering its active allocated passives fund range since 2008, but its funds differ from the T.Bailey fund in that they are risk-graded passive multi-asset portfolios.