Research questions long-term performance of tracker funds

Added 8th August 2017

With the exception of funds tracking the US and UK mid caps, no passive funds have been able to generate first or second quartile performance in their respective sectors over the past 10 years, according to research from Chase de Vere.

Research questions long-term performance of tracker funds

The popularity of passive funds has surged in recent years, with many advisers questioning the higher fees charged by active funds. However, research from Chase de Vere suggests most tracker funds have underperformed their active peers over both five and 10 years, questioning the value they provide.

The research looked at tracker funds in the IA UK All Companies, Europe, North America, Asia ex Japan, Japan and Emerging Markets sectors, and bar the second quartile performance of the HSBC FTSE-250 Index and two US trackers, no fund made it into the top two quartiles over the last 10 years to August 7, according to data from FE Trustnet.

With a strong start to 2017 from global equity markets, investors may well expect active managers to have done well, but Chase de Vere’s Patrick Connolly said their longer-term outperformance puts into question some perceptions regarding passive funds.

“The popularity of tracker funds is due to their low charges and the general perception that this should result in them performing well over the longer-term,” he said. “However, our research shows that this could be an incorrect assumption.”

North American exception

The only region where a passive approach clearly produced above average performance was in North America. Given its perception of being the most efficient stock market in the world, these findings are hardly a surprise, with few active managers demonstrating a long-term ability to outperform the S&P 500.

"Our research suggests that funds with lower charges don’t necessarily provide the best value."

So why the underperformance of trackers in other regions? Connolly explained: “In part this is probably because active funds are likely to have a higher weighting in mid and small cap stocks and these should, over the longer-term, outperform larger companies, which will usually be more heavily represented in trackers.”

Indeed, versus the iShares 100 UK Equity Index return of 56.6% over five years, the iShares Mid Cap UK Equity Index rose 100.3%, placing it first quartile in the IA UK All Companies sector.

“There is currently a strong focus on investment fund charges and quite rightly so as many funds charge too much and deliver too little,” Connolly said. “However, our research suggests that funds with lower charges don’t necessarily provide the best value and passive investments are not some form of investment panacea.”

 

Visitor's Comments Add your comment

Add Your Comment

We won't publish your address

Features

How should investors respond to ECB tapering?

How should investors respond to ECB tapering?

The improving economic outlook in the euro area has prompted the European Central Bank to consider reining in its monetary stimulus. How should investors respond to the prospect...

Interviews

Fund manager transparency is vital, says Marta Campello

Fund manager transparency is vital, says Marta Campello

Above everything else, Marta Campello of the Spanish wealth manager Abante Asesores wants fund managers to be transparent. And if they are, that could make the difference...

About Author

Adam Lewis

News Editor

Adam has been a freelance journalist and content editor since 2015. A journalist and editor with over 15 years experience, until 2015 he worked as editor of Fund Strategy for three years, and worked on the same title as deputy editor there seven years. Prior to this he was reporter at Investment Week.

Top Stories

Inflows stall across emerging market funds in first for 2017

Inflows stall across emerging market funds in first for 2017

Emerging Market equity and bond funds ended their longest inflow streaks since 2013 during the second week of August as investors took some of their year-to-date gains off the table.

UK only region where dividend payments fell in Q2
UK only region where dividend payments fell in Q2

The UK was the only region in the world to see dividends fall in Q2 according to the latest...

Robots, drugs and fees: The key trends that have shaped ETFs
Robots, drugs and fees: The key trends that have shaped ETFs

The last 10 years have seen ETF products grow from pre-teens to fully fledged adults, even...

News

Trump’s ‘fire and fury’ threat wipes $1trn from global markets

Trump’s ‘fire and fury’ threat wipes $1trn from global markets

The drastic fall across global markets following president Donald Trump’s threats...

Published : 17, Aug 2017

IMF warns of 'dangerous' trajectory for Chinese debt

IMF warns of 'dangerous' trajectory for Chinese debt

China’s growth outlook is expected to improve between 2017 and 2021, but the country’s...

Published : 17, Aug 2017

UK gilt funds shine in FE’s passive crown ratings

UK gilt funds shine in FE’s passive crown ratings

More than half of passive UK gilt funds have been awarded FE’s top accolade for their...

Published : 16, Aug 2017

 Could today's India outshine yesterday's China?

Could today's India outshine yesterday's China?

Though it might be tempting to view today’s India as yesterday’s China, Rathbones’...

Published : 16, Aug 2017

Equity bull market not dead yet, says Charles Stanley

Equity bull market not dead yet, says Charles Stanley

The global equity bull market has further to run, despite industry concern it has...

Published : 15, Aug 2017

Events

Expert Investor The Madrid Investment Club 2017
Expert Investor The Madrid Investment Club 2017

Monday 25 & Tuesday 26 September
Melia Hotel, Valencia

Expert Investor Italy 2017
Expert Investor Italy 2017

Tuesday 3rd October 

Hotel Principe di Savoia, Milan

Expert Investor Sweden - Equity 2017
Expert Investor Sweden - Equity 2017

Wednesday 11 October
Grand Hotel, Stockholm

Expert Investor Alternative UCITS 2017
Expert Investor Alternative UCITS 2017

Thursday 19 & Friday 20 October
Grand Hotel Huis ter Duin, Noordwijk

OTHER STORIES FROM LAST WORD...