iShares, Amundi and Vanguard rank top in passive funds analysis

Business-Growth-Drawing-Chart-Performance-700x450.jpgETF providers iShares, Amundi, and Vanguard rank as the top performers in the passive industry, according to research by fund research firm FE.

iShares had the largest number of funds in the FE rankings including the MSCI Japan Ucits ETF, the UK Gilts 0-5yr Ucits ETF and the Index-linked Gilts Ucits ETF – sterling.

Amundi had two top ETFs, with the Index Equity Euro and the ETF MSCI USA, while Vanguard’s Emerging Market Stock Index fund scored well.

The top funds were judged by tracking difference, tracking error and fund size over the past three years.

Specifically, passive funds had to have a tracking difference of less than 0.75 per cent, a tracking error equal to or less than 0.5 per cent and a fund size of over £100m.

FE director Mika-John Southworth says passives play a valuable role in helping investors construct cost-effective portfolios.

“Although the rise in the number of passive funds is impressive, there is a stark difference in performance between the best and worst passive funds.

“We appreciate the lengths that some asset managers go to provide the most effective and lowest cost investment options, therefore we felt that it was right to recognise these participants with their own awards.”

Oliver Clarke-Williams, head of ratings at FE Research, says while tracking error is a good indicator of how well a fund is tracking the index it should not be the only thing to be assessed’

He says the analysis should consider the tracking difference, cost and fund size as well.

He says: “Tracking difference is important in that it shows how different the performance has been over time relative to the respective index it is tracking. It can be used together with fund size to give an indication regarding how expensive/efficient the fund is.

“Although it is not typically discussed when comparing tracker funds, we take fund size into consideration because it is generally desirable for a fund to have a certain level of scale to be an economic proposition. Funds are therefore rewarded for being larger.

“It is also important to look at cost, a low tracking error is desirable but only if the cost of that passive does not significantly up how much you ultimately pay out in costs.”

The number of global ETFs rose from 713 in 2006 to 3,423 as of May this year, according to FE data.

According to the Investment Association, tracker funds in the UK have £109.2bn funds under management at the end of April 2016 representing 10.7 per cent of industry funds.

FE
Source: FE