Low-cost active fund assets dwindle as investors lose interest

Low-cost active equity funds, launched to much fanfare in the UK two years ago, are failing to attract investor interest as they pass their second anniversaries.

Both Schroders’ UK Core fund and J. P. Morgan AM’s UK Active Index Plus fund have struggled to take on assets since launch in early 2011.

Schroder UK Core has returned 18.7% since launch on 18 March 2011 to the end of Q1 2013, compared with a 22.3% rise in the All Share over the same period, according to the group.

But assets in the fund have dwindled in recent months despite performance starting to improve.

Although the fund out-performed its benchmark over the past six months to return 15.7%, assets have dropped from £37m to £12m since last October.

Schroder UK Core targets 1% outperformance of the All Share net of fees, and has a TER capped at 0.4%.

“The fund is building its track record at the moment and we are not actively promoting it,” a Schroders spokesperson said.

The JPM UK Active Index Plus, meanwhile, which was converted into a low-cost portfolio in February 2011, has performed better but has also suffered from limited investor interest.

Aiming to outperform the All Share with an ongoing charge of 0.4% and a TER of up to 0.55%, the fund has returned 21.6% compared with a 20.3% total return for the index between
1 February 2011 and 31 March 2013, according to Morningstar.

However, the product, a conversion of the £61m UK Active 350 fund, has not attracted significant assets. AUM has risen to just £76m in size since its conversion date.

JPM declined to comment. The group previously indicated it had put plans for further low-cost products on hold given the absence of flows into Index Plus.

“These funds are still essentially tracking funds. I am not anti-passive, but they are structurally obliged to underperform the market after fees,” said Darius McDermott, managing director of Chelsea Financial Services.

“These funds have a small chance of outperforming after a fee, but alpha can also work against you.

“With hindsight, it does not look like the greatest of ideas. The flows into the funds answer the question of how the industry has taken them. It does not seem to have worked.”

Low-cost active equity fund performance

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This article was first published on Investment Week

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