InvestmentsFeb 2 2015

Assets held in UK tracker funds rocket by 23.5%

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UK investors are increasingly turning to low-cost investment options, prompting an increase in demand for passive funds, a spate of recent reports has found.

Data from the Investment Association last week showed that assets held in passive, open-ended tracker funds grew by 23.5 per cent in 2014 to reach a record high of £93bn.

The assets under management in UK tracker funds now account for 11.2 per cent of all assets invested in Investment Association funds. This is nearly double the figure of 6.3 per cent of total assets recorded at the end of 2009.

Tracker fund sales were consistently high throughout the year, even when total fund sales slipped in August and September 2014.

In fact, when the net sale of property funds – for which there are no Investment Association tracker funds available – is removed from the September figures, the total tracker fund sales amount of £444m was higher than the overall net fund sales of £413m for the month.

This suggests that, apart from property, investors sold out of active funds and into passive funds in September.

Exchange-traded fund (ETF) sales also achieved record highs in recent months, according to reports from iShares and ETFGI.

Research from iShares found that December 2014 saw the best ever monthly sales of global exchange-traded products (ETPs) at $61.5bn (£40.7bn), which helped total ETP sales for the year reach a record $330.6bn.

This was then backed up by separate research from ETFGI, which found investors put $338.3bn into ETFs in 2014, bringing the global total of assets under management in listed passive funds up to $2.8trn.

The latest white paper from passive investment manager Vanguard also suggested that, in equity funds in particular, there was a wholesale shift away from higher-cost funds into low-cost funds in the UK.

Vanguard’s report – ‘Costs matter: Are UK investors voting with their feet’ – analysed fund flows into UK-domiciled, open-ended funds and ETFs, which were divided into four quartiles based on their ongoing charges figure (OCF), using data from Morningstar.

The report found funds in the bottom quartile for OCF – those charging up to 0.49 per cent – received 91 per cent of the net inflows into equity funds in the five years to the end of December 2013.

The bottom bracket for costs was able to achieve such a high percentage of the inflows because funds in the top-two quartiles suffered net outflows in the same period.

The lowest cost funds recorded inflows of £106bn and the next cheapest – 0.49 per cent to 1.29 per cent – recorded net inflows of £23bn.

But funds charging between 1.29 per cent and 1.85 per cent suffered outflows of £1bn, and those charging more than 1.85 per cent lost £12bn.

While the figures, especially at the higher-cost end, are likely to have been skewed by the advent of the RDR and the banning of commission, the huge inflows into equity funds with an OCF of less than 0.49 per cent showed a clear shift towards passive investing.