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Passive Investing - November 2015

    Passive Investing - November 2015


    Providers of exchange-traded funds (ETFs) and index-tracking funds have continued to lower costs in response to adviser demand and competition among their peers, with HSBC Global Asset Management and Fidelity both cutting fees on some tracker funds in October.

    The products are continuing to build market share. Figures from the Investment Association (IA) show that at the end of September 2015 assets under management in tracker funds accounted for 12.2 per cent of the industry total at £101.6bn.

    While this may not seem overly significant, it is quite a jump from a 10.9 per cent share in September 2014 with assets of £88.4bn. In addition, while it may be just 12 per cent of total assets, tracker funds actually hold more assets under management than all other IA sectors apart from the UK All Companies, which held £156.7bn under management at the end of September.

    This rise in popularity is supported by research from Square Mile Investment Consulting & Research, which notes that since it has included passive funds in its Academy of Funds – what it deems “best-in-class” products – approximately 20 per cent of adviser traffic has been in search of passive vehicles.

    Richard Romer-Lee, managing director at Square Mile, notes: “The recent introduction of passive vehicles has generated significant attention from advisers, mirroring the strong flows into these types of funds in the wider market.”

    In-demand ETFs

    Meanwhile, the ETF market is also blossoming. Lipper’s latest European ETF Market Report for October 2015 notes assets under management in the European ETF market increased from €428bn (£302bn) to €464.2bn in October. But the research notes that this increase was driven mainly by the performance of underlying markets, while net sales contributed €5.8bn.

    Though Fidelity FundsNetwork has announced its intention to extend the range of ETFs available on its platform, easy access to these vehicles remains a top priority for advisers and clients.

    Research from Source, a provider of exchange-traded products, suggests 82 per cent of advisers believe ETFs need to be more widely available on investment platforms. Furthermore, 34 per cent of the 103 advisers surveyed said they expect their clients to increase their exposure to ETFs over the next year, compared to just 4 per cent who believe their use will decline.

    The research from Lipper also highlights disparity among ETF promoters in Europe, as it notes only 19 of the 46 ETF promoters held assets of more than €1bn as of the end of October. As a result, iShares dominates the European ETF scene with €229.5bn of assets – the equivalent to 49.5 per cent of the overall assets under management – with db X-trackers in second place with €55.9bn.

    Investors are clearly tempted by the lower charges and exposure these vehicles provide, but some may argue there is too much choice of product and not enough choice of provider in this market.

    As the passive sector continues to evolve, with numerous products such as emerging market trackers, ‘smart beta’ and passive hybrid vehicles being launched, investors need to be aware that taking a beta approach is not as easy as just picking a FTSE 100 tracker and hoping for the best. In the current market, due diligence is now even more important when looking at the best passive exposure.

    Nyree Stewart is features editor at Investment Adviser

    Passive investing: in numbers


    Approximate number of ETFs/ETPs globally


    Approximate assets under management in ETFs/ETPs globally


    Equity ETFs/ETPs net inflows for year to date


    Net inflows into fixed income ETFs/ETPs for year to date

    Source: ETFGI / Figures correct as of October 31 2015

    In this special report


    Please answer the six multiple choice questions below in order to bank your CPD. Multiple attempts are available until all questions are correctly answered.

    1. How many licensed ESG exchange-traded funds use MSCI indices as a benchmark?

    2. Indices that track the market are traditionally weighted by what type of strategy?

    3. According to figures from the Investment Association, tracker funds accounted for what percentage of total assets at the end of September 2015?

    4. The FTSE All-Share has how many oil and gas constituents that make up 11 per cent of the index, the largest sector weighting in the index?

    5. Research from Source suggests what percentage of advisers believe ETFs need to be more widely available on platforms?

    6. At the end of June this year, four high-dividend indices offered an average gross dividend yield increase of what percentage, compared with their respective benchmark indices?

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