InvestmentsOct 10 2014

Fund selectors pile into passive following Budget

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At-retirement reforms announced at the Budget have helped build momentum behind passive investment in ‘core portfolios’ from discretionary managers, according to Investec Structured Products’ head of intermediary distribution Gary Dale.

Speaking to FTAdviser, Mr Dale said his firm in particular had seen significant interest in its Qtrac UK Controlled Volatility Fund, an open-ended fund which tracks the Even 30 Index plus reinvested dividends.

The index also has a volatility control which, when combined with the unweighted split of the 30 30 least volatile stocks from the 100 largest companies on the London Stock Exchange, provides for the lower volatility measure, relative to its ‘big brother’.

The fund will generate the equivalent cash amount of any dividends that are paid by the stocks within the Even 30 index, with a dividend yield at inception of 3.79 per cent.

Mr Dale believes it makes the investment suitable for those seeking a steady pre- or post-retirement income, combining the features of passive tracking with lower volatility than most alternatives.

Mr Dale stated that fears over counterparty risk - which relates to the potential failure of a party underwriting a derivative product - have ebbed away since the financial crash, to be replaced by concerns over market risk.

“The move to passive is no longer piecemeal, discretionary managers are putting big chunks of core investments into passive, and not just trackers either,” Mr Dale commented.

Data released by the firm last month showed that pension and direct sales of its structured investment plans rose 170 per cent and 130 per cent respectively since the financial crisis peaked in 2009, with a significant proportion of the direct investment increase being attributable to clients preparing for retirement.

“So far wraps like Nucleus and Novia have taken it up, but its been harder to get onto the platforms.

“It’s a bit chicken and egg, the discretionary managers want to buy the fund, but can’t yet because it’s not on the big platforms; so we’ve been book building with bigger discretionary managers and looking to offer seeding deals.”

Given the performance of the underlying index, Investec Structured Products is also working on a Euro 70 version, and if that works, “there is no reason why we couldn’t create US and Asian equivalents,” added Mr Dale.

peter.walker@ft.com