Page 47 - DIY Investor Magazine - Issue 28

ACTIVE VS PASSIVE: CREATING A LEVEL PLAYING FIELD The active vs passive conundrum has long been one of the most hotly debated in investing circles – writes Christian Leeming. Exchange Traded Funds (ETFs) have been growing rapidly in popularity with UK investors due to their low costs and the fact that they can be traded as easily as any other listed security; a longstanding problem for has been sourcing information to allow direct comparisons of their performance and fees with actively managed funds. However, that is all set to change as the Investment Association is adding ETFs to its widely used UK fund comparison tool; the framework will measure fees and performance of index- tracking exchange traded funds against actively managed products for the first time in a move that is expected to boost the popularity of passive investing. About 530 ETFs from 11 asset managers, including BlackRock, Vanguard, Legal & General Investment Management and Fidelity are included in the Investment Association’s fund sectors comparison framework since 19 April. The IA is the trade body representing the UK’s fund industry and its sectors provide an important tool to help investors make like-for-like comparisons between thousands of funds by dividing them into clearly defined groups, each with a distinct investment focus; this move is widely seen as a significant step for ETFs as they enter the investing mainstream, which will increase the visibility and comparability of ETFs. Including ETFs will increase the total number of funds in the IA’s sectors to more than 4,100 and will provide a further competitive challenge to active funds. In announcing this change, Jonathan Lipkin, director for policy, strategy and research said the IA is also splitting its Global Bonds sector into 14 more detailed categories, increasing the total number of sectors from 39 to 52: ‘Including ETFs within the IA sectors will help investors more easily find and compare the full range of investment funds available to them,’ he said. A committee made up of IA staff, industry members and data providers meets regularly to review any issues relating to the sectors and to ensure that investment funds stay within their defined parameters. According to data provider Refinitiv Lipper, investors allocated significantly more new cash to UK equity and bond trackers last year than competing actively managed funds; bond tracker funds attracted net inflows of £10.8bn of which £3.1bn went into ETFs while actively managed bond funds gathered £2.3bn. Actively managed equity funds registered withdrawals of £2.9bn while tracker equity funds pulled in £30bn, of which £2.3bn went into ETFs. The inclusion of ETFs into the IA’s sectors is likely to further accelerate the trend towards passive investments as their profile rises. MAKE SURE YOU DON’T MISS AN ISSUE; CLICK HERE TO RECEIVE DIY INVESTOR MAGAZINE TO YOUR INBOX 47 DIY Investor Magazine | Apr 2021