Investing in passives

Capture the performance of a selected index

Passive or index tracking Funds aim to replicate the return of a market index, less fees, by investing in its underlying securities. The two distinct types of passives are:

  • Traditional index Funds (also called index trackers) which are structured as Unit Trusts or OEICs and trade once a day
  • Exchange Traded Funds (ETFs), which are traded on a stock exchange during opening hours.

The case for passives

  • The advantage of a Passive approach is that it spreads your investment widely. This is useful if you have a relatively small amount to invest
  • Passives are a low cost alternative to Active Funds because there is no additional input from Fund Managers – they use automated trading to buy the constituents of an index. Studies have shown that a large component of overall portfolio returns derive from good Asset Allocation decisions, often to a greater extent than active stock selection.

What are the disadvantages?

Passive Funds won’t do much more than track the chosen index. Over the long term the average performance of Active Funds has tended to be better in most markets.

If an index is dominated by a particular sector and it does badly, your investment suffers. This happened during the banking crisis in 2008, when the FTSE 100 was dominated by banks.

An index Fund or an ETF?

Index Funds are useful for a simple replication of major indices whereas ETFs offer many more specialised options. Index Funds are priced once a day while ETFs are traded on the stock market, so there is immediate pricing during trading hours.

In summary

Passives may be worth considering if you want to get some general exposure to a market quickly and have not got time to research all the Active Funds available. Some investors opt for a combination of Funds – a Passive core complemented with selected Active Funds to try and spice up performance.

How to find them

Willis Owen offers a wide range of Index Funds. We also provide popular ETFs which can be investigated through our : explore research facility. ETFs are traded like Shares and are charged at our usual online rates, which start from just £7.50 per deal.

Our shortlist of featured Passive Funds

To assist you, below is a shortlist of Funds for your consideration by independent research partner Square Mile. They work closely with us to filter down the Fund selection into a focused list of high quality Funds for our investors.

Fund Name IA Sector Square Mile Rating FE Crown Rating FE Risk Score Link
iShares Continental European Equity Index (UK) Europe Excluding UK Square Mile Recommended Crown Rating 0
118
Fund Details
iShares North America Equity Index North America Square Mile Recommended Crown Rating 0
107
Fund Details
L&G International Index Trust Global Square Mile Recommended Crown Rating 0
102
Fund Details

When selecting a Passive Fund make sure you understand the Fund’s mandate and that it matches your own objectives.


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