Investments 

Closet tracker funds appear to double to 17

This article is part of
Summer Investment Monitor - June 2015

The number of ‘closet tracker’ funds – those funds that charge an active fee but appear to be closely aligned to a benchmark – has more than doubled in a year, new research by Investment Adviser shows.

In 2014, the number of potential closet tracker funds identified by our metric was just eight, but this year that has jumped to 17.

The Investment Association (IA) UK All Companies sector has the most closet trackers at 14, overtaking the North America sector which had housed the majority of closet tracker funds in the past two years.

Aberdeen Asset Management has one UK All Companies fund with tracker-like tendencies, the Swip MM UK Equity Growth fund, following its acquisition of Scottish Widows.

It is also the only fund manager with a potential closet tracker fund in the IA Global Emerging Markets sector. Aberdeen Emerging Markets has an R-squared of 0.98 and an active share of just 40 per cent.

A spokesperson for Aberdeen confirms the company is reviewing the positioning of all its funds in light of the Swip acquisition.

It states: “A number of mergers and fund changes are planned. These include adjustments to management fees for passive or quantitatively managed funds which are designed to track or closely follow a benchmark.”

JPMorgan Asset Management also has two potential closet tracker funds this year, having dropped out of last year’s list.

The JPM UK Managed Equity fund, run by James Illsley and Sarah Emly, has an active share of just 34 per cent and an R-squared of 0.97. JPMorgan insists the fund has always been run as a “core, low-risk” fund, which might explain why it has been in and out of the closet tracker list over the years. Meanwhile, the JPM UK Strategic Equity fund makes the list with an active share of 46 per cent and an R-squared of 0.97.

A spokesperson for JP Morgan notes: “At this moment, a number of the mega-cap names in the index are attractive investment opportunities for the fund given their cheap valuations. The fact we own a number of these names contributes to the lower than average active share. However, this is more a reflection of our size bias – driven by where we are finding value currently – than our levels of conviction.”

The £217.9m Axa General Trust, managed by Keith Robinson, dropped out of the closet tracker list in 2014, but makes a return in 2015.

A statement from Axa Investment Managers says: “The Axa General Trust is actively managed and takes active positions in individual stocks and sectors. It was established in 1969 to give equity exposure to a unit-linked insurance product.”

Two Santander UK All Companies funds have been flagged as potential tracker funds, having last been in the closet tracker research in 2012.

Santander Asset Management notes that both its UK Growth and PF UK Equity funds have had a manager change, with a subsequent change in holdings in both portfolios.

A spokesperson for Santander explains: “Graham Ashby joined the business to take over management of the funds on February 4 this year. Under Mr Ashby’s management, the funds have seen significant changes to their portfolios and transitioned from a large-cap bias to a mid-cap one.”