Passive funds – market update

by Patrick Norwood
Insight Analyst - Funds

January 2016

This market update is designed to inform advisers about passive investing, helping them to keep up to date with this growing area of investment. It will also provide the latest numbers for the size of the industry.

Investments in a fund or discretionary portfolio can be active, passive or a blend of the two. In the case of active fund management, a manager is employed to outperform a benchmark by an agreed percentage through researching securities, deciding when to buy and sell them, selecting their weightings in the portfolio and then monitoring the portfolio on an ongoing basis. Passive offerings, meanwhile, attempt to deliver the same return as an index, or ‘track’ it, rather than trying to outperform it.

Key learning objectives include understanding:

• The differences between active and passive investing, along with the advantages and disadvantages of each within a portfolio
• An understanding of the different types of passive funds, either exchange traded or more traditional open ended investment company (OEIC)/unit trust structures and different investment methods - full, part (in both cases securities are actually owned) or synthetic replication (where derivatives or similar are used instead)
• The various factors and criteria that Defaqto use when rating passive funds, including the ability to track, charges, funds size and group assets under management

This CPD-accredited passive funds market update covers these areas in more detail.