Shock Horror, Passive Outpaces Active


Exchange Traded Products provider Source has reduced its management fee on its S&P 500 UCITS ETF to 0.05% – making it, according to management, one of the most aggressively priced ETFs delivering S&P 500 exposure.

The fee drop comes at a time when the fund is close to nearing $1 billion in assets, having attracted substantial inflows.

Outperforming the S&P

In terms of performance, the passively managed fund has returned 19.83% over the 12 months to 31st May 2014, outperforming the 19.69% return of the S&P 500 Total Return (Net) Index.

Source emphasised its belief in the advantage of passive over active fund management when it comes to the S&P 500. “It is also worth noting that the S&P 500, as the best known US large cap benchmark, is very difficult for active managers to outperform,” it said. “Thereby making a particularly strong case for passive fund management of US large cap exposure.”

Source Chief Development Officer Michael John Lytle said: “We believe in the importance of both offering investors highly efficient market beta as well as compelling differentiated strategies.”

“Due to developments in market cost structures, we saw an opportunity to reduce the management fee on our S&P 500 fund. This further enhances the already outstanding performance of this fund.

The Passive Advantage

“When gaining exposure to US large caps the importance of passive management comes to the front. In highly efficient markets, it is notoriously difficult for active fund managers to deliver outperformance, especially on a consistent basis. For example, only five out of more than 500 US large cap funds available to European investors have managed to beat the S&P 500 over each of the last five years, and none of those were actively managed.

“Passive ETFs really stand out in delivering market exposure to developed markets like the US, where investors want a consistent after-fees return relative to the index. Total cost of ownership is the most important element when evaluating ETF performance but headline fees are an important driver and one that is easy for all investors to observe.”

Source is one of Europe’s leading Exchange Traded Product (ETP) providers with over US$18 billion in assets under management.


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