Newspaper article The Evening Standard (London, England)

You & Your Money: The Choice Is.Unnecessary; A Combination of Active Funds and Trackers Can Be Beneficial, Explains Stephen Ellis

Newspaper article The Evening Standard (London, England)

You & Your Money: The Choice Is.Unnecessary; A Combination of Active Funds and Trackers Can Be Beneficial, Explains Stephen Ellis

Article excerpt

Byline: STEPHEN ELLIS

INVESTORS are being asked to choose between active or passive fund management when, in reality, there is a place for both. Last year's fund performance figures have brought the situation into focus. With the exception of some European markets, indices around the world fell or, at best, barely held their own. As a result tracker funds also fared badly. On the other hand, a number of active fund managers clocked up positive performances.

Nicola Horlick of SG Asset Management won a three-year bet with tracker fan Sir Richard Branson only this month.

Mark Betts, of financial adviser Individual Savings Accounts, is a supporter of actively managed funds but was surprised by the result of some recent research. It showed that, over a five-year period, the FT-SE All Share index had risen 115%, but only around one in five actively managed funds in the UK All Companies sector managed to beat this. These figures assumed that the investor had paid full commission. If they had used a discount broker, 71 of the 201 All Companies funds would have beaten the index.

But Betts's next calculation showed that, over the same five-year period and after charges, the Virgin tracker had grown just 110% and had been beaten by around half of the All Companies sector funds, assuming they had been bought through a discount broker.

WM, an investment performance consultancy, has looked at the figures and, supported by Virgin, has come up with some different calculations. It suggests that 80% of the funds in the All Companies sector failed to beat the index over a 20-year term. In the past five years the research shows that four out of 10 of the funds were within 3% of the performance of the index and a further one third showed a deviation of between 3% and 6%.

Alastair MacDougall, WM's research and consultancy manager, says: "It is questionable whether any investor should pay active fees for a manager who has not deviated substantially from benchmarks. …

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