UK investors ditch active funds amid Woodford crisis
In the three months to the end of June, a staggering £1.9bn was withdrawn from actively managed funds, while passive index-tracking funds attracted a record £2.1bn, according to figures from fund settlement service Calastone.
Edward Glyn, head of global markets at Calastone, suggested the Woodford debacle had contributed to the mass exodus. The manager suspended his flagship Equity Income fund on 3 June following a sustained period of poor performance and a wave of people wanting to get their money out.
Glyn said: “Recent negative publicity about high-profile active funds is affecting sentiment around that segment of the market and may be accelerating redemptions in the short term.”
Data from Interactive Investor, the UK’s second largest fund platform, shows a similar pattern, with passive funds accounting for five of the top 10 most bought open-ended funds in June.
The five funds in question are all from Vanguard, with three coming from the firm’s popular LifeStrategy range.
Despite this, two familiar active fund names – Fundsmith Equity and Lindsell Train Global Equity, continue to take first and second place, with Lindsell Train UK Equity not far behind, in fourth place.
Rebecca O’Keeffe, head of investment, Interactive Investor, said: “Recent events have put the whole active versus passive debate back in the spotlight. There are undoubtedly huge positives to low-cost trackers and they are steadily gaining in popularity in the UK. In the US most new money already flows into passive investments.
“However, that doesn’t mean that there is no place for active managers. The ability for an active manager to invest where, when and in what they like is exactly what some investors want. It undoubtedly increases the risks, but the reward is often worth paying extra fees for.”
Moira O’Neill, head of personal finance at Interactive Investor, added: “Whilst Vanguard funds are a world away from Fundsmith and Lindsell Train, what they do have in common is a clear, well defined strategy, and they stick to their knitting. This is clearly part of their very strong appeal.
“There’s another reason why Vanguard are doing so well, and it isn’t just about cost – the LifeStrategy funds are giving active managers a run for their money on both performance and cost grounds.
“It’s interesting to see BlackRock have arguably risen to the Vanguard challenge with the recent launch of the MyMap range, with an ongoing charge of 0.17% compared to 0.22% for the LifeStrategy Funds. It will be interesting to see whether these new funds manage to capture investors’ imagination.”
Top 10 most bought funds June 2019