Hargreaves Lansdown slams trackers

Hargreaves Lansdown has reignited the active versus passive investment debate after slamming index trackers as “guaranteed to underperform”.

Mark Dampier
Mark Dampier

The company says some advocates of passive have been “disingenuous” in “denigrating” the achievements of the best active fund managers.

Mark Dampier, the head of research, says that Hargreaves Lansdown compared the average performance of trackers in the IMA UK all companies fund sector with the sector’s overall average performance.

It found that trackers annually returned 0.46% less than the sector average over the past 20 years. They also returned 0.96% less per year than the FTSE All Share index.

“While not wishing to enflame the passive brigade, we thought it was about time that some balance was brought to the active/passive debate. Passive funds are cheap but they deliver guaranteed underperformance,” Dampier says. (article continues below)

“It is disingenuous of the passive industry to ignore and denigrate the achievements of some excellent active managers who have outperformed over the long term, such as Richard Buxton and Nigel Thomas.”

HSBC Global Asset Management is one of the world’s biggest providers of passive funds and also has an active range. Andy Clark, the managing director for UK wholesale, says: “I am surprised at this. From our view, the active versus passive debate has been dead for a while – the two can work in tandem.”

Clark says the research fails to take into account the fact that fees on trackers have fallen sharply in the past 20 years. He says HSBC GAM used to charge 1% but average fees are now closer to 0.25% and this could account for poor performance in historic data.

Michael Breen, an associate director and analyst at Morningstar, says: “It is time to accept that there is value to both active and index approaches.”