Passives enter Hargreaves Lansdown ‘best buy’ list for first time

Britain’s largest fund platform, Hargreaves Lansdown, has added 13 index-tracker funds to its Wealth 150 list for the first time since its launch in 2003. Wealth 150 lists the funds rated as ‘best buys’ by the firm, which is one of the UK’s largest independent financial advisers. The 13 funds also appear in a more select list, the Wealth 150 Plus, which includes 54 funds in total. A spokesperson for Hargreaves Lansdown said clients have nearly doubled their passive exposure since 2011, when 6% of clients used index funds compared to 11% today. The firm attributes this to a combination of falling fees, the popularity of passives in company "auto-enrolment" pension schemes, and scepticism over the performance of active managers. In July this year, Legal & General Investment Management said passive index returns beat active fund returns 87% of the time, and active funds underperformed their benchmarks by 2.6%, on average, annually over the past 15 years. Mark Dampier, head of research at Hargreaves Lansdown, said index trackers have become an important part of an investor’s toolkit and the firm expected a continued polarisation of the UK funds market, with capital flowing into high quality active funds at one end of the spectrum, and low cost passives at the other. “The middle ground, inhabited by closet trackers, will become increasingly squeezed out of the picture, as investors continue to vote with their feet, and seek out real value in both active and passive funds,” he said. Regulatory change under the Retail Distribution Review (RDR) in the UK since 2013 was widely expected to increase the availability of passive funds from advisers. The RDR ended commissions paid by funds to advisers – a practice that was seen to bias advisers in favour of selecting more expensive active funds due to higher commissions. ©2016 funds europe

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