Passive funds have been selling like hot cakes over the past decade, and 2019 was a continuation of the trend.
When it comes to sales, there has only been one winner in the active versus passive fund battle over the past decade, with the latter hoovering up a flood of investor money.
In 2007, before the financial crisis struck, the amount held in tracker funds was a mere £29 billion, which at the time represented 6.3% of the total.
Fast-forward to 13 years later and passive funds’ market share has leaped to £230 billion. Overall, passive funds today account for 17.8% of funds under management.
There is no sign of a let-up anytime soon either, with new figures from the Investment Association revealing that 2019 was a record-breaking year for passive fund sales. A total of £18.1 billion was invested, beating the previous record of £10.8 billion in 2017.
In stark contrast, a total of £3.2 billion was withdrawn from active funds in 2019. Overall, the total amount invested into funds over the year stood at £14.9 billion. Almost a quarter of this figure was ploughed into funds in December, with £3.6 billion invested. A total of £1.3 billion went into UK equity funds – the highest amount in seven years, as investors gave the thumbs up to the general election outcome.
Chris Cummings, chief executive of the Investment Association, adds: “This new-found confidence was felt across UK plc, with inflows into funds investing in large to small cap UK companies.”
Investors who bought UK funds in December, though, missed out on pre-election gains. While there was a ‘Boris bounce’ following the general election outcome, UK equities (particularly smaller companies) had a strong run in the weeks leading up to the election, as the market moved to ‘price in’ an expected victory for the Conservative party.
Paul Jourdan, co-manager of the TB Amati UK Smaller Companies fund, points out: “It was from around September that smaller companies started performing well. When the election happened there was a final spurt, as the market breathed a huge sigh of relief as the risk of a socialist Labour government led by Jeremy Corbyn was no longer on the table.”
From the start of September to 11 December (the day before the election) the TB Amati UK Smaller Companies fund returned 10%. Between 12 December and 5 February the fund gained 8%, figures from FE Trustnet, the analyst, show.