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UK investors are set to be able to compare the performance of index-tracking exchange traded funds with that of actively managed products for the first time in a move that is expected to boost the popularity of passive ETFs in the country.
About 530 ETFs from 11 asset managers, including BlackRock, Vanguard, Legal & General Investment Management and Fidelity will be included into the Investment Association’s fund sectors comparison framework from 19 April.
The IA sectors provide an important tool to help financial advisers and individual investors to make like-for-like comparisons between thousands of funds by dividing them into clearly defined groups, each with a distinct investment focus.
Laith Khalaf, financial analyst at the fund supermarket AJ Bell, said the changes to the IA’s fund sectors “marks another step into the mainstream” for ETF investing in the UK.
“It will bump up the visibility and comparability of ETFs, and provide a further competitive challenge to active funds,” said Khalaf.
ETFs have been growing rapidly in popularity as portfolio building blocks due to their low costs and the fact that they can be traded as easily as any other listed security. However, finding information to make direct comparisons of their performance and fees with actively managed funds that pick stocks has been a longstanding problem for UK investors.
Including ETFs will increase the total number of funds in the IA’s sectors to more than 4,100. The IA is also splitting the Global Bonds sector into 14 more detailed categories, increasing the total number of sectors from 39 to 52.
“Including ETFs within the IA sectors will help investors more easily find and compare the full range of investment funds available to them,” said Jonathan Lipkin, director for policy, strategy and research at the Investment Association, the trade body representing the UK’s fund industry.
A committee made up of IA staff, industry members and data providers meets regularly to review any issues relating to the sectors and to ensure that investment funds stay within their defined parameters.
Investors allocated significantly more new cash to UK equity and bond trackers last year than competing actively managed funds, according to according to Refinitiv Lipper, the data provider. Bond tracker funds attracted net inflows of £10.8bn of which £3.1bn went into ETFs while actively managed bond funds gathered £2.3bn. Actively managed equity funds registered withdrawals of £2.9bn while tracker equity funds pulled in £30bn, of which £2.3bn went into ETFs.
“More investors will join the growing throng of converts as the profile of ETFs rises and their inclusion in the IA’s sectors will only serve to accelerate that trend,” said Khalaf.
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