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Demand for passives 'reminiscent of tech bubble'

Demand for passives 'reminiscent of tech bubble'

The rise in demand for passive investment products bears a similarity to the flood of capital that went into technology stocks at the turn of the millennium, according to Haig Bathgate, head of portfolio management at 7 Investment Management.

Mr Bathgate said the best selling funds on 7IM’s adviser platform were passive products, the Vanguard Lifestrategy 60 per cent equity fund currently being the most popular investment product with advisers.

Mr Bathgate said: "It feels like the late 90s. Back then money was pouring into TMT, today it’s passives and smart beta. But when it comes to adviser purchases, today’s platform data suggests that they are often using multi asset funds with passive underlying index funds."

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He said the rise in passives showed investors were looking for the cheapest way of getting exposure to markets, having seen them move up for the past 10 years.

He explained: "This is during a period where market correlation has been high – why try to beat the market when it’s doing so well all on its own.

"But as we know, it usually pays to do the opposite of what’s performed best and therefore the case for active managers is quite compelling at this stage."

David Scott, an adviser at Andrews Gwynne in Leeds, said he avoids passive funds "like the plague". But he said the rush to buy passives indicated the market has peaked.

He said: "It is always a sign of the top of the market when passive funds start to outsell traditional funds. It means that investors have become complacent."

Meanwhile, the best selling investment trust on the 7IM platform is the £81m Miton Global Opportunities trust, managed by Nick Greenwood, which invests in other investment trusts.

david.thorpe@ft.com