Peter Westaway, chief economist for Europe at Vanguard, has urged advisers to dig into how actively managed certain funds are.
In the latest FTAdviser video interview, Mr Westaway said advisers “won’t always know” that a supposedly active managed fund is in fact a closet tracker and talked about how they should “dig into the detail” of a portfolio to make sure their clients are not being over charged.”
Speaking to Money Management’s Julia Faurschou, Mr Westaway said: “Closet trackers are just masquerading as active managed funds but really they are just passively following the benchmark.
“I think they [advisers] understand trackers in general. What they won’t always know is when an active fund that they are picking is doing exactly the same thing (tracking an index or benchmark) as it is disguised and claiming to do something more than that.
“There is a concept called active share, where some people provide evidence of how active a portfolio is.
“So, crudely speaking at one end of the spectrum an active share of zero would be a purely passive fund and an active share of 100 per cent would be one that is just focussed on one fund.
“So anything between nought and 100 per cent gives you that measure of activeness.
“But most funds don’t provide that level of detail so you really have to dig into the detail of the fund to see what it is doing.”
Mr Westaway said cost should be a “really big consideration” when advisers recommend a fund.
He said: “There is only one element of your total return that you can know in advance and that is cost.”
emma.hughes@ft.com
