DIY Investors: “Losing Confidence” In Active Funds

The head of research of the UK’s largest DIY platforms has said the number of best-selling passive funds in August is “unprecedented” in the company’s history and has raised question marks over direct investors’ confidence in active strategies.

Four of the top 10 best-selling funds in August on The Share Centre were passive trackers, which all replicate variations of FTSE UK equity indexes from providers Legal & General, HSBC, Vanguard and Blackrock.

Fears that China’s growth could slow more than expected triggered panic selling in Asian and global markets last month, perhaps prompting investors to take comfort with index trackers rather than pay up more for active managers.

“Having four tracker funds is unprecedented in comparison to our previous monthly reports,” said Sheridan Admans, investment research manager at The Share Centre. “This could be the result of investors losing confidence in active management strategies, or looking for more cost effective ways of gaining access to a diverse range of UK companies.”

The featured passive funds have gained billions of pounds since launch and offer competitive fees compared to actively managed UK equity funds.

The £4.8 billion Legal & General UK Index Trust scored fourth spot with annual fees of 0.56 percent (according to its website and several platforms), and the £657 million HSBC FTSE 250 Index Trust came in fifth – it costs 0.17 percent per year. The £3.8 billion Vanguard FTSE All Share Index Trust came in seventh with fees of 0.08 percent, while the £7.8 billion Blackrock UK Equity Tracker fund in eighth place and costs 0.21 percent.

However, the top spot remained firmly with star active manager Neil Woodford, with his CF Woodford Equity Income fund in first place last month. His £6 billion fund costs 0.75 percent per year and invests currently in 93 holdings.

"The manager of this fund is extremely popular and highly regarded by investors for the consistency of his investment approach, which should stand out during this time of market volatility," added Admans.

Other actively managed funds in the top 10 best-selling list focused on sectors like biotech and healthcare, where passive funds fail to provide the same kind of exposure.