Switching to Passive Funds

Wealth managers should stop chasing alpha and start switching their clients into passive funds

Fundamental Tracker Investment Management 7 February, 2013 | 6:00AM
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This article is part of Morningstar's 'Perspectives' series, which features contributions from third parties such as asset managers, academics and investment professionals.

Sometimes it is the simplest phrase that captures everything. A private client fund manager encapsulated the challenge that everyone in the financial sector is currently facing when she said “The problem is no wealth is being created right now”. The GDP figures for the UK certainly bear that out.

The Good Ol' Days

For years, banks, fund managers, intermediaries and brokers feasted on a rising tide of wealth. Some of it came from economic growth, some of it came from government largesse, but the bulk of it came from the miracle of fractional reserve banking. Each additional pound of equity a bank retained could be lent out nine times to others clamouring to buy a bigger house, larger kitchen or just pay off the credit card. No one liked banks particularly much then but, hey, if it was going to lend you 100% of the value of your dream home that you could flip for a 20% increase in five years who were you to moan about greedy bankers.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Ford Motor Co14.05 USD1.92Rating
Rolls-Royce Holdings PLC146.20 GBX10.34Rating

About Author

Fundamental Tracker Investment Management  is dedicated to the investment philosophy of constructing tracker funds using measures other than price. The company runs one fund, The Munro UK Dividend Fund, and uses fundamental measures to assess companies.

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