Trackers gaining ground while Woodford loses out

UK funds under management hit a record high in 2013 as investors became more active in unit trust selection. Net retail sales were at £20.4bn for the year, up from £14.3bn in 2012.

The results come at a time when Daniel Godfrey, chief executive of the Investment Management Association (IMA), has said retail investors were “highly active” in 2013.

In fact, an average of more than £1.6bn of new money was invested into funds every month. “Equity funds took by far the largest share of the net inflows from investors,” he said.

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“After years with the strongest net sales, fixed income took no new money in 2013. Both mixed asset and property funds saw stronger inflows than in 2012.”

While the age-old passive versus active debate is still rife, it seems tracker funds are increasing further in popularity.

According to the IMA, trackers have been gaining ground over the past year. Net retail sales in 2013 totalled £3.2bn, the highest since the IMA began recording data for the vehicles.

Funds under management as at the end of 2013 were £74.2bn, which accounts for 9.6 per cent of the industry, well up from the 8.9 per cent in 2012, and 6 per cent 10 years ago. According to the IMA’s most recent monthly data, tracker funds saw net retail sales of £441m in November 2013, with funds under management at £73m by the end of the month.

Jason Hollands, managing director of business development and communications at Bestinvest, said advisers should exercise “caution” in the coming year. “The environment for 2014 is altogether different as the US Federal Reserve has begun winding down quantitative easing and market expectations have begun to dwell on eventual interest rate hikes in the US and UK,” he said.

While investors are becoming more active in fund selection, the top-selling funds during Isa season will be different to previous years. Eyes have moved away from Neil Woodford’s popular Invesco Perpetual Income fund, a once favourite.

Since Mr Woodford announced his departure in October, the Invesco Perpetual Income fund has consistently seen outflows, as seen in the Chart. As of the end of July, the fund size was £10.7bn, and as of 31 January, it stands at £8.4bn.

While the fund is still comparatively large, the losses alone equate to more than the total holdings of 97 per cent of UK unit trusts. It was even reported in January that the fund saw £500m of outflows in just one day. Mr Woodford is set to launch a new UK equity income fund when he joins Oakley Capital in May.