Investors abandon active fund management
Sales of low-cost tracker funds hit a record high in the first quarter of 2012 with investors pouring £661 million into these investment vehicles, according to figures from the Investment Management Association (IMA).
It's the highest level of investment in tracker funds since the IMA started analysing the figures two decades ago.
In contrast, sales of funds of funds, which typically have higher charges, fell by £1.3 billion in the first three months of the year. Sales of ethical funds also fell to just £26 million, compared to £85 million over the same period in 2011.
"The increase in tracker fund sales in the first quarter could be for a number of reasons, not least because charges are a hot topic," says Danny Cox, spokesperson for broker Hargreaves Lansdown. "At the same time the likes of Vanguard and other low-cost trackers (such as the SWIP All Share tracker) are now being distributed by more brokers and trading platforms."
Investing as a whole has fallen, with total retail sales of all funds at £3.8 billion in the first quarter, compared to £6.2 billion in the first quarter of 2011.
Also known as index funds, tracker funds replicate the performance of a stockmarket index (such as the FTSE All Share Index) so they go up when the index goes up and down when it goes down. They can never return more than the index they track, but nor will they lose more than the index. Also, with no fund manager or expansive research and analysis to pay, tracker funds benefit from having lower charges than actively managed funds, with no initial charge and an annual charge of 0.5%.