InvestmentsMay 3 2013

Tracker costs cause performance disparity, MM research shows

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Money Management’s special report on passive investing shows just how important it is to pay attention to costs after it found expensive tracker funds will significantly underperform the index.

Looking at the total expense ratio (TER) for tracker funds following the FTSE 100 and FTSE All-Share indices alongside cumulative performance over the past 1, 3, 5 and 10 years, MM research looks at whether low cost is enough of a reason to choose a tracker fund over an active fund.

The report asks advisers why they would choose passive tracker funds over active funds. Andrew Whiteley, director of chartered financial planners Provisio says trackers enable the investor to control risk and to lead to diversification. “We don’t want to focus too much of our client portfolios into single stocks or different assets,” he said.

The on-going passive versus active debate continues, but interest in passive investing has been on the up for a while. Meanwhile, recent research from Which? Money suggested there might finally be a winner in the contest. The report said just 38 per cent of all active fund managers that aimed to beat the FTSE All Share index managed actually to do so in the past 10 years.