SCM Private's Miller brands UK All Cos a bad deal

The former New Star chief investment officer, who ran UK equity funds before shifting to hedge funds and portfolios of ETFs, said most vehicles in the sector charge high fees for active management, but in reality behave more like index trackers.

Although their total expense ratios are four times the average ETFs, Mr Miller said funds in the sector returned 130 basis points less a year.

Over the five years to the end of December, the average active fund returned 5.2 per cent a year, against 6.5 per cent for the FTSE All Share.

The average active fund also has a standard deviation of 17.2 per cent, compared with 15.5 per cent for the index. By many standard definitions, this means it takes more risk.

Mr Miller said: "Our research appears to indicate that many fund managers' portfolios are really just closet index funds with a bit of active management around the edges, presumably in order to justify high fees. These high fees are very often compounded by poor stock selection.

"We wholeheartedly believe that the vast majority of private investors would be better off by investing in ETFs offering lower costs, flexibility, transparency and liquidity."

However, multi-managers such as Lothar Mentel at Octopus Investments have argued expertly selected active funds can still outperform at certain stages in the cycle.