From today it has added 13 index tracking funds – also known as passive funds because they require no active manager to run them – onto its Wealth 150 Plus list of recommended funds.

Of the 13 funds chosen eight are run by Legal & General, four are from BlackRock, with the HSBC FTSE 250 Index fund completing the list (see full table, including charges, below). All of these funds have previously been included in the adviser firm’s Core Tracker list of favourite passive funds, but it is the first time they have been added to the Wealth 150 since the fund list was launched in 2003.

Explaining the decision, Mark Dampier, head of fund research at Hargreaves Lansdowne, said: “Private investors are pragmatic, not dogmatic, when it comes to their portfolio, and simply want the most appropriate fund for the market they are investing in, whether that is active or passive. To help them do that we are moving 13 index tracker funds onto the Wealth 150 Plus, so it’s easier to compare active and passive funds across each investment sector.

“The Wealth 150 Plus is now our selection of the best actively managed funds and index tracker funds available to UK investors at low management fees. We constantly assess the funds on the list for quality and value, and will continue to push hard to reduce fund charges for our clients.”

Index tracking funds have risen in popularity over the last number of years, more so since the global financial crisis which highlighted how in many areas of the market it is very hard for active managers to consistently outperform. Indeed in the so called more efficient stock markets, such as the US, UK and Europe, advocates of passive funds suggest it is much harder for active funds to consistently outperform, given the higher costs involved in running an active fund.

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Dampier says: “Index trackers have become an important part of the private investor’s toolkit, and while the industry ties itself in knots arguing the toss for active or passive, our clients are using both as part of a common sense approach to portfolio construction.

“There are some markets, like the US, which have proved incredibly difficult for active managers to consistently outperform. By contrast, the smaller companies sector is a fantastic hunting ground for active managers, but isn’t particularly well served by passive funds.”

Dampier adds the 13 funds included on the Wealth 150 were chosen by a rigorous selection process, which took into account a number of fund characteristics. One of the mains ones was cost.

“When it comes to passive funds, cost is clearly a very important factor, and this is certainly one of the key things we looked at,” he says. “We also negotiated hard to beat down charges, and as a result we are able to offer these funds at exceptionally low fund costs, indeed the Legal & General UK Index fund is available for a market-leading annual fund cost of just 0.06%.”

However Dampier was keen to stress that selecting index funds is not all about costs. He says it is also important to consider which index a fund aims to track and that the methodology of which it tracks that index also needs to be considered.

“We generally feel that broader, more diversified indices are better, and have wider appeal,” he says. “We also generally feel that full replication is best for investors, which means the manager holds all the stocks or bonds in an index, as it leads to more precise tracking, but we recognise that this is unfeasible in some markets.”

 

ANNUAL FUND CHARGES
	Standard ongoing charge	HL saving	Net ongoing charge (for HL clients)
BlackRock Corporate Bond Tracker	0.17%	29%	0.12%
BlackRock Emerging Markets Equity Tracker	0.25%	8%	0.23%
BlackRock Japan Equity Tracker	0.16%	31%	0.11%
BlackRock Pacific ex Japan Equity Tracker	0.19%	26%	0.14%
HSBC FTSE 250 Index	0.18%	56%	0.08%
Legal & General All Stocks Gilt Index Trust	0.15%	33%	0.10%
Legal & General All Stocks Index Linked Gilt	0.15%	33%	0.10%
Legal & General European Index	0.12%	25%	0.09%
Legal & General Global Inflation Lnk Bond Indx	0.27%	37%	0.17%
Legal & General International Index Trust	0.13%	38%	0.08%
Legal & General UK 100 Index	0.10%	40%	0.06%
Legal & General UK Index	0.10%	40%	0.06%
Legal & General US Index	0.10%	40%	0.06%