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Investors lose patience with active managers

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Attracted by lower fees and questions over the effectiveness of actively managed funds, retail investors are increasingly turning to passive funds according to new research.

Between 1 July to 11 August 2016 (the first half of the third quarter) online investment platform rplan reported a 248% spike in gross inflows by self-directed investors into passive funds, when compared with the same period last year.

Covering the time period shortly after the Brexit vote, net inflows into index tracking funds were up 159% versus the same time period last year, while active funds saw only a 72% rise. However, in terms of volume, flows into passive funds still only amounted to a third (32%) of those into actives.

Stuart Dyer, CIO at rplan, said: “On the whole, investors are increasingly interested in passives and we have seen this too in their rising prevalence on our list of popular funds.”

According to Dyer, this evidence points to investors’ growing awareness of costs and the extent to which they now question the value added by active managers.

“However, while charges should indeed be a consideration, it is much more important for investors to understand the risk exposure of the funds in which they invest and to ensure that they have a balanced, diversified portfolio to meet their financial goals,” he added.