Figures from the IMA show overall net retail sales of tracker funds in 2012 reached £1.5bn. This seems quite high, but in a volatile risk-on/risk-off environment when tracker funds may have been a choice for more risk-averse investors, the total was significantly lower than the £2bn of sales in both 2011 and 2010.

Latest statistics show April’s net retail sales of these funds reached £277m, the highest level since August 2011 when it recorded sales of £331m. But this is a sharp swing from March’s net outflows of £137m, which was the worst level of outflows since February 2006. So where do investors stand on these types of vehicles?

Adrian Lowcock, senior investment manager at Hargreaves Lansdown, points out: “I think it is important not to read too much into one set of figures. Tracker funds have proved to be popular among cost-conscious investors and are useful to access markets where active managers have struggled to add value.

“In addition managers have been using tracker funds to get exposure to a market in the short term but without making any tactical decisions on where to invest. If the stockmarket and, more importantly, the economy continues to recover we could see investors’ confidence grow and money flow from trackers into active managers as they want access to the sectors and companies that will benefit most from economic growth.”

While some use tracker funds for specific cost or risk reasons, they can also form part of a wider portfolio. Regular reviews of asset allocations can contribute to large inflows and outflows into the vehicles, particularly in the bond sector.

Ben Willis, investment manager and head of research at Whitechurch Securities, says: “Both government and corporate bonds are looking relatively unattractive from an investment perspective presently (particularly UK gilts).

“As such, passive UK government bond funds may have seen outflows as the asset class falls out of favour. This could also have been a trigger for any assumed outflows from corporate bond trackers. Eighteen months ago, holding any corporate bond-tracking fund would have delivered double-digit returns after a year. However, a blanket approach year-to-date, or going forwards, is not going to deliver similar returns.”

Mr Willis claims there is still value to be had within corporate bond markets, but warned that investors have to be selective.

“Investors may have decided they want more flexibility when it comes to bond exposure and have opted for actively managed strategic bond funds,” he says.

Another possible reason for an overall decline in tracker sales is that, post-RDR, more advisers are looking to outsource to multi-manager or multi-asset funds, reducing the need for trackers.

Mr Willis notes, however, that in spite of recent figures there is still demand for passive funds.

“Much of the battleground among fund providers and service providers is down to costs. The argument for passive funds has always been that the majority of active fund managers fail to beat their respective indices and yet charge heavily for this.

“Also, it has been argued that making the right asset allocation calls is the key source for outperformance and so gaining access to the best fund manager in his/her respective field is irrelevant.”

Martin Bamford, chartered financial planner and managing director of Informed Choice, agrees that tracker funds are growing in popularity but that UK demand still lags that of the US.

“I still think the majority of UK investors favour active management to trackers. There are probably cultural reasons for this, as investors want the opportunity to beat the markets, in spite of the risks that they will underperform.

“This could in part be the result of clever marketing from fund providers. I’ve yet to see compelling marketing for passive funds, other than within the intermediary sector. In the US, for example, trackers are viewed as the sensible choice. I think we will get there in the UK, but it could take another ten or 20 years before trackers are the dominant fund choice.”

With market volatility starting to pick up as we move into the second half of the year, investors may face a choice of moving to a lower-cost tracker with potential index volatility or paying more for potential manager outperformance.

Nyree Stewart is deputy features editor at Investment Adviser