James Coney  

Asset managers need to change the record

James Coney

James Coney

The most flabbergasting thing about the rise of trackers is that it has happened largely without the help of financial advisers or the big investment platforms.

While you guys have been plugging mainstream asset managers and discretionary wealth management services, ordinary DIY investors (as we like to call them in the media) have been slowly and surely opting for trackers.

The reason, primarily is cost.

Since Virgin launched its  – now, not so low-cost – FTSE tracker in 1995, there has been a steady flow of money moving to cheaper options across the market. Then came BlackRock and then Vanguard; and the rise of the latter has proved the final tilt.

The figures are starting to become staggering. Although the asset managers still have the majority over the longer term, there are signs that investors have grown a little weary of the high fees.

In March, 80 per cent of new investments made at Hargreaves Lansdown were into passives.

For context, trackers account for 18.9 per cent of all UK investments. In the US the figure is 40 per cent.

The growth, perhaps unsurprisingly is coming from younger investors. About 39 per cent picked trackers compared with only one in four investors aged above 55. 

Now you can argue the rights and wrongs of all of this, not least that, clearly, if you are invested in trackers you are totally exposed to the market.

And the old joke is that trackers equal guaranteed underperformance.

But if asset managers are going to prove their worth then they really need to start shifting the dial, because an existential crisis awaits if things keep going as they are.

Just take a look at the annual BMO Global Asset Management Multi-Manager Fund Watch survey.

It showed that the number of funds achieving top quartile returns consistently over a three-year period as at the end of 2020 rose to 5 per cent, compared with 3.9 per cent in the previous quarter. 

Those securing above median returns in 2020, increased from 15.7 per cent in the first quarter to 18.8 per cent.

But flip these figures on their head and you have got more than 80 per cent of fund managers with median or below performance. Pathetic.

And we have seen from value assessment reports that not enough managers are ensuring clients are in the right share classes.

For years asset managers have ignored the argument over fears, and now they are losing out.

For years advisers have ignored passives. I know that some have embraced them, but it is not enough.

Clients, I am sure, are asking about them. If not, why would big names like St James’s Place bother with them?

It shows that if you do not adapt, you may lose out too.

I just don’t believe it

For a few weeks I have been hearing the odd gripe about Unbiased.