How to force mis-sold trackers out of the closet

So far, however, much of this investigation has involved peeking through the keyhole rather than throwing open doors.

The European Securities and Markets Authority (Esma) is the latest to take a look, stating up to 15 per cent of the equity funds it surveyed are charging active fund fees for a product that is more or less passive in nature.

Yet Esma’s analysis – which began at least 14 months ago - has resulted in it simply committing to “additional work” alongside national regulators, and to “analyse the need for further clarification” on issues like funds’ disclosure to investors.

The FCA, for its part, does not appear particularly interested. Closet trackers may make an appearance when it publishes the results of its thematic review into fund disclosures shortly, but this will probably take the form of a ‘bad practice’ example at worst.

Part of the problem is in definition. There’s no agreed way to identify a closet tracker, and it’s true that measures like active share, used in isolation, can be misleading.

Funds should be obliged to publish a full list of holdings – and their respective benchmark weightings – on a monthly basis. Dan Jones

Using a combination of active share, tracking error and R² - how much fund performance is attributable to movements in its benchmark – looks sensible.

This three-pronged approach was used by both Esma and in research conducted for Investment Adviser by Morningstar last year.

But I’ve seen plenty of other get-outs mentioned by fund houses, relating to everything from investment styles to benchmark composition.

When you add this to watchdogs’ usual reticence to name specific culprits in their industry studies, and an understandable reluctance to set prices, then it becomes clearer why closet trackers are still living relatively untroubled lives in the shadows.

These caveats only go so far when it comes to a practice which, in many cases, constitutes mis-selling.

But even accounting for regulators’ reserve, there’s something else that can be done, and it relates to one solution which Esma did gesture towards – disclosure.

Simply hiding something in a bi-annual report and accounts has rarely been shown to work. What I’d suggest is funds being obliged to publish a full list of holdings – and their respective benchmark weightings – on a monthly basis.

To me, it’s remarkable that this isn’t yet common practice.

If Neil Woodford, the country’s highest profile fund manager can do it, then the old excuse of managers not wanting to reveal portfolios to their competitors no longer holds water.

It would also provide clear, easy to follow evidence of exactly how they’re attempting to add value. That really would force the closet trackers out into the open.