Are You Paying Through the Nose for a 'Closet Tracker'?

How to identify if you're paying for active management but getting passive performance

Emma Simon 3 October, 2014 | 9:55AM
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Neil Woodford, the star fund manager who set up his own investment company earlier this year, may be an unlikely standard bearer for low-cost passive funds. In a recent interview he claimed fund managers are paid too much as many are effectively just running ‘closet trackers’.

This is not a new problem. For more than a decade there have been concerns about the number of active managers who stick too closely too their benchmark index, often because a significant deviation could cost them their jobs, and charge a typical fee or around 0.75% for doing so. In contrast, a passive ‘tracker’ fund or ETF—costing as little as 0.1%—will mirror its relevant benchmark far more accurately.

As an active fund manager, Woodford isn’t saying that all investors should be in passive funds. But his words could further fuel sales of these funds. Such comments come at a time when sales of passive funds continue to gain strength, with tracker funds now accounting for 10% of funds under management in the UK.

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Emma Simon

Emma Simon  is a financial journalist, specialising in investment and consumer issues, writing for

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