AIC calls for wider scrutiny by watchdog’s market study

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The Financial Conduct Authority must look beyond the open-ended sector as it carries out the next phase of its Asset Management Market Study.

As the industry submitted its responses on Monday (20 February) the Association of Investment Companies suggests the passive versus active argument is losing relevance, as both styles of investment tend to underperform their benchmarks after fees.

The trade body for the closed-ended sector finds over 10 years 57 per cent of investment companies outperformed their benchmarks on a share price basis, while 54 per cent outperform based on net asset value. This compares with 42 per cent of open-ended funds that beat their benchmarks in NAV terms.

Using Morningstar data over 10 years to 31 December 2016, the AIC compared ‘sister’ funds – where a group offers two investment portfolios with the same fund manager, same investment process and holdings but one is closed-ended and the other open-ended. It revealed in 31 out of 41 cases, the closed end product has outperformed net of fees, with an average annual outperformance of 1.1 per cent.

AIC director general Ian Sayers says: “Investment companies have independent boards of directors who work in the interests of shareholders.

“This provides an additional layer of oversight of the services provided by the investment manager and the level of fees paid.

“The closed-ended structure of investment companies is a structural advantage, allowing managers to take a long-term view of their portfolio and contributing to investment companies’ strong long-term performance.