Sea change in investment habits predicted

Low-cost index trackers are likely to become more and more en vogue among private wealth management clients, it has been suggested.

Writing in Investment Adviser, Defaqto consultant Fraser Donaldson indicated that recent market volatility was resulting in customers becoming less likely to put their money into actively managed funds.

The stock markets in particular have endured almost unprecedented turbulence, with the FTSE 100 losing 35 per cent of its value over 2008 and hitting a decade-long low earlier this year.

This has in turn damaged returns from both index trackers and actively managed funds.

However, the higher fees charged by managers has diminished active funds’ appeal to investors, according to the Defaqto expert.

Mr Donaldson added: ’In uncertain markets, any kind of certainty is welcomed. If you invest in an index fund, you can be reasonably certain it will perform in line with the index it tracks. You have a clear idea of what your fund is doing, and there is some appeal in this knowledge.

’Trackers are cheap to run, and charges are, consequently, considerably lower. In markets where we may be looking at years of low returns, cost may become a hugely influencing factor.’ADNFCR-2318-ID-19229608-ADNFCR