AJ Bell Active v Passive Report 2021

“The UK All Companies sector is also one of the oldest, and that has some bearing on the passive funds that are available in this area too, with some higher charging legacy funds helping to lower returns across these funds as a whole. Whereas the cheapest UK tracker fund in the sector costs just 0.05% per annum, there are a number of funds which cost over 1%. When looking at performance for both active and passive funds, we have used median instead of mean averages in order to mitigate the effect of outliers like this within the data sets. However, inevitably there will still be some downward performance pressure from higher charging passive funds in the UK, compared to a sector like the US, where the lowest fund charge is also 0.05%, but the highest is a much more competitive 0.29% per annum.

“While the effect of mid cap performance and higher charging tracker funds do tilt the balance in favour of active funds in the UK, these factors are still present in the UK fund investment universe, and so are a fair representation of the investment opportunity set open to investors in UK funds.” 

Active v passive fund charges compared

“Looking at annual charges more broadly, on average UK active funds are typically offered at a lower price than most other regions and command a smaller premium over passive alternatives too. Combined with strong relative performance from active managers in the UK, this suggests that if investors do wish to invest some of their portfolio actively, the UK is a favourable place to do it.

“Charges on the most competitively price tracker funds have come down significantly in the last ten years, and so discriminating passive investors can expect to improve their lot by shopping around. Active fund charges have also become more competitive since the Retail Distribution Review prompted greater transparency in this market. Active funds are less commoditised than passive funds though, with managers competing not just on charges, but also on performance and volatility. Active investors may legitimately therefore choose to pay a price premium for a fund manager they have a high level of conviction in. Such considerations don’t carry much weight in tracker land, where index selection and price are the key components of investment decisions.”

IA sector Average ongoing charges %
Active Passive Active premium
Asia Pacific Ex Japan 0.95 0.15 0.80
Europe Ex UK 0.89 0.12 0.77
Global 0.92 0.2 0.72
Global Emerging Markets 1.01 0.25 0.76
Japan 0.9 0.13 0.77
North America 0.86 0.1 0.76
UK All Companies 0.86 0.17 0.69

 

Sources: AJ Bell, Morningstar

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