There are no benchmark huggers in Europe’s biggest fund centre, Luxembourg’s financial regulator CSSF has claimed, “except one isolated case.”
Campaign group Better Finance has published the names of asset managers running so-called closet trackers: funds that closely hug an index. Some large asset managers are particularly well-represented on the list.
The European Securities and Markets Authority’s (Esma) investigation into funds marketing themselves as active but in reality are passive, or ‘closet trackers’, underestimates the extent of the problem, according to UK investment boutique SCM Direct.
With returns from European equities distinctly harder to come by than during the QE inspired climb last year, active funds falling short in active share terms are going to find investors less forgiving.
Between 5 and 15% of active Ucits equity funds could be index huggers, the European financial services regulator Esma has concluded after it analysed the performance of a set of 2600 of such funds compared to their benchmarks, for the period 2012-2014. This is strong enough evidence for the regulator to take further action, said Esma’s chair Steven Maijoor.
Active managers are under fire from all sides. Regulators in the Nordic countries are leading the attack on closet trackers, and cheaper ETFs are eating market share. Fund selectors are looking on this favourably, though the asset management example is not followed by the wholesale sector in every European country.
The Norwegian financial regulator recently announced that it considers the DNB Norge fund, a supposedly actively managed fund invested in Norwegian large cap equities, a so-called closet-tracker. Orgland used the DNB Norge fund in his client portfolios until last year.
He gives his view on the controversy surrounding this fund.