A greater focus on asset allocation, as opposed to fund selection, is driving growth in passive investments, wrap platforms and a fund supermarket told FTAdviser.
According to the Investment Management Association, passive investing has grown considerably in popularity, with net retail sales of tracker funds jumping from £1.8bn in 2012 to £3.2bn in 2013.
Speaking to FTAdviser, Barry Neilson, business development director at Nucleus, said that 60 per cent of portfolios have some element of passive investment “and every time we look at it, that number is increasing”. He added that last year, it was just under 50 per cent.
On Nucleus, Vanguard has just surpassed £1bn of funds and 14.5 per cent of fund assets on the wrap are now Vanguard, whilst 8.4 per cent are Dimensional.
From its top 20 funds, 10 are passive: six are Vanguard, two are Dimensional, One is an HSBC American index tracker and the other is a Legal and General tracker.
Novia told FTAdviser that around 20 per cent of wrappers contain a passive investment, with three passives in its top 20 by assets under management.
Mr Neilson said: “Everyone is thinking more about emphasis on the adviser process and less about consideration of investment solutions.
“They can take major risk out of the equation of clients. They don’t want to manage fund risk and recognise that returns are driven by asset allocation rather than fund selection.”
Evrin Erdem, head of investment at Copia, said: “It has been well-documented by numerous studies that asset allocation is the main driver of portfolio returns rather than stock selection.
“The advantage of using passive instruments is they cost significantly less than actively managed funds, and at the same time provide desired exposure to the markets and sectors in our asset allocation.”
Despite suggestions that fund supermarkets are struggling with offering passive, Fundsnetwork told FTAdviser that it is “committed” to developing its passive range. The platform added it has also seen an 85 per cent increase in net sales of passive strategies from 2013 to 2014.
Four passive funds are listed in Fundsnetwork’s top 20.
Jon Everill, head of advisory services at FundsNetwork, told FTAdviser that investors are attracted by low costs as well as the “consistent delivery” of a return close to the market.
“A greater focus on asset allocation, rather than fund selection is also having an influence. Another factor is undoubtedly the increased choice of passive products that advisers have available to them today.
“We continue to add index managers and funds based on adviser demand. Indeed, we now have one of the broadest range of passive/tracker products in the UK market, with currently 265 different options available to advisers, including passive ETFs.”
donia.o’loughlin@ft.com
