EU regulator clamps down on 'closet' trackers; Considers rethink of active/passive definitions

Surveyed over 2,000 funds

Laura Dew
clock • 3 min read

The European Securities and Markets Authority (ESMA) has found up to 15% of UCITS equity funds examined could be 'closet' index funds, and has called for further investigation by national regulators.

It surveyed 2,600 EU UCITS funds over the period 2012-2014 to assess how much of their portfolios coincided with the index, and found 5%-15% of equity vehicles could be described as 'closet indexers'. There are around 29,000 UCITS funds in the EU, meaning as many as 4,350 could be affected. The decision on whether a fund was a 'closet indexer' was made using a number of factors including assessing the percentage of a portfolio that does not coincide with the underlying equity benchmark. ESMA found 15% of equity funds surveyed had an active share of under 60%, and a tracking error o...

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