InvestmentsFeb 8 2023

Passive funds continue to rise in popularity

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Passive funds continue to rise in popularity
Businessmen pass an illuminated clock near the offices of global financial institutions in the Canary Wharf business, finance and shopping district at night in London, UK. Passive funds made up nearly a third of overall fund sales last year. (Chris Ratcliffe/Bloomberg)
BySally Hickey

Passive fund purchases made up a higher share of overall fund sales last year.

Trackers made up an average of 28 per cent of fund sales in 2022, higher than the 21 per cent seen in 2021 and 20 per cent the year before, according to the Pridham Report.

Passive funds have grown hugely in popularity in recent years, however commentators have warned that trackers may not perform as well as expected in the next few years.

Indeed, five of the top 10 most popular funds with DIY investors on AJ Bell’s platform last year were exchange-traded funds.

Another good year for BlackRock

BlackRock saw the highest gross retail fund sales in 2022, the report said, with inflows of £28.6bn.

The asset manager saw inflows to its UK domiciled open-ended investment funds of £28.6bn last year, according to the latest Pridham Report.

BlackRock maintained its spot at the top of the list for the ninth time, in a year where it saw volatile markets wipe $1.4tn (£1.16tn) off the value of its assets under management, and was embroiled in a row over its stance and activities around climate change.

The company began 2023 with a plan to cull 500 employees, representing 2.5 per cent of its global workforce.

Source: The Pridham Report

Anna Pridham, co-editor of the report, said gross sales are the “true measure” of how much new money asset management groups are attracting.

“In uncertain times, having a strong brand and a compelling product offering is often what sets successful managers apart,” she said.

Legal and General Investment Management and Fidelity were second and third with £16.3bn and £15.6bn respectively.

There is potentially more opportunity for long term savers than we have seen in many yearsAnna Pridham, Pridham Report

Fidelity recorded the highest net retail sales in 2022, with £3.6bn, followed by LGIM and HSBC Asset Management in third.

The report noted the increase in trade of passive products, with LGIM, Fidelity and HSBC AM all recording an increase in gross sales of passive funds in comparison to 2021.

Bond funds swung back into favour towards the end of the year, after suffering significant outflows in the first quarter.

Bond valuations are current attractive, fund managers have said recently, however others have warned that risks remain in the fixed income market for investors.

Although high volatility is expected to continue in markets and continuing high inflation is set to be a defining feature in 2023, Pridham signalled there is hope for investors.

“In times of market uncertainty, there will inevitably be winners and losers,” she said.