The upcoming anniversary of Lehman Brothers' collapse offers a timely opportunity to revisit an old question: which is better, active or passive investment management?
Five years on – almost to the day depending on when you’re reading this – from the collapse of Lehman Brothers and the start of the credit crisis, that now-familiar, sinking feeling remains: the economy is still struggling.
Following the exit of Lehmans and the many other institutions that went the same way, investors sought fund managers that could soften the blow on the way down but were ready to pounce at the first sign of a recovery.
And, with the costs associated with active management making headlines, many advisers turned to lower-cost passive vehicles for a solution. Were they right to?
Five years on from Lehmans' collapse, how is the active v passive debate faring?
Tracker funds' share of total retail funds under management remains marginal, but, according to data from the Investment Management Association (IMA), there is an upward trend: from a share of 7.1% recorded in the second quarter of 2011 to 7.5% in Q2 this year.
Some 40% of the 85 funds track the FTSE All Share and FTSE 100.
Using data supplied by FE Analytics, we looked to see how funds in the IMA UK All Companies sector compared to the returns from UK indices.
In the five years to 7 September, the FTSE 100 delivered a return of 13.3%, while the FTSE All Share returned 13.5%. Both bettered the average 6.4% return from funds in the IMA UK All Companies sector over the same time frame.
That is not to say there have not been some stellar performances from active managers: the £59.5m Mark Slater-managed MFM Slater Growth fund, for example, was the best fund in the sector over five years, returning 74.3%.
Meanwhile, Liontrust’s £453.9m Special Situations fund, managed by Anthony Cross and Julian Fosh, was the second best performer, returning 69.1%, with Unicorn’s £9.4m Outstanding British Companies fund in third, posting returns of 57.9%.
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