Twenty passive funds have posted top quartile returns in their relative Investment Association (IA) sectors so far this year, according to research by FE Trustnet.
The passive-active debate is one that burns intensely in the asset management industry, with the rise of passive investing picking up pace in recent years thanks to synchronised global growth creating strong market performance across the world.
This has put active managers under the spotlight, who are having to prove now more than ever that they are truly active managers and are genuinely earning the high fees they charge.
With this in mind, FE Trustnet decided to look at which passive funds have outperformed their active counterparts in the first half of 2016.
We took the whole IA universe and filtered those passive funds that posted top quartile returns in their sectors between 1 January 2018 and 30 June 2018.
Out of the 20 passive funds that returned top quartile performance year-to-date (YTD), two produced the best return in their sector, two produced the third best and a further two were in the top 10 of their sectors.
But the passive fund that produced the best total return in the first six months of 2018 is one of six in the list that are managed by US giant Vanguard: Vanguard Global Small-Cap Index.
The five FE Crown-rated fund has returned 5.11 per cent YTD, which is the 58th best return in the largest of the Investment Association sectors, IA Global. It has an ongoing charges figure (OCF) of 0.38 per cent.
Performance of funds YTD
Source: FE Analytics
Also run by US passive house is the Vanguard UK Long Duration Gilt Index, which is up 1.06 per cent YTD and is the third-best performer in the IA UK Gilts sector. It has an OCF of 0.15 per cent.
The next best-performing fund from the company is Vanguard Pacific ex-Japan Stock Index, which has returned 0.28, the 21st best in the IA Asia Pacific Excluding Japan sector.
The fund is the largest of the passive vehicles on the list with a fund size of £2.6bn. It has an OCF of 0.23 per cent.
Moving into negative territory, Vanguard Global Short-Term Bond Index has lost 0.3 per cent YTD and is a top-quartile performer in the IA Global Bonds sector. It has an OCF of 0.15 per cent.
The last two Vanguard funds on the list fall in the IA Sterling Corporate Bond sector: Vanguard UK Short-Term Investment Grade Bond Index and the £2.5bn Vanguard UK Investment Grade Bond Index.
Although both have produced negative returns, Vanguard UK Short-Term Investment Grade Bond Index is the best performing fund in the sector YTD with a loss of 0.03 per cent, while Vanguard UK Investment Grade Bond Index is down 0.84 per cent and is the sector’s 15th best. They both have OCFs of 0.15 per cent.
The other fund group that counts six top quartile passive performers in the first half of 2018 is Legal & General Investment Management.
The top performer on an absolute basis is L&G Global Health & Pharmaceuticals Index Trust, which has returned 4.42 per cent and sits in the top quartile of the IA Global sector.
It tracks companies in the FTSE World index that are engaged in health, pharmaceuticals and biotechnology and has an OCF of 0.31 per cent.
Next is L&G Global Real Estate Dividend Index, which tracks the performance of the FTSE EPRA/NAREIT Developed Dividend Plus index.
Since the beginning of the year, the passive fund has returned 2.89 per cent, the 12th best in its sector, IA Property, and has an OCF of 0.20 per cent.
Performance of funds YTD
Source: FE Analytics
The remaining four L&G funds are all fixed income vehicles. The best performer is L&G Global Inflation Linked Bond Index, which returned exactly 0 per cent, making it the 27th best in the IA Global Bonds sector.
It is £1.2bn in size and will invest between 80-100 per cent of the fund in the Barclays World Government ex UK Inflation Linked Bond Index. The fund has an OCF of 0.27 per cent.
L&G Short Dated Sterling Corporate Bond Index and L&G Sterling Corporate Bond Index fall in the IA Sterling Corporate Bond sector and have returned the seventh and ninth best performances in the sector, despite both figures being in negative territory. They have OCFs of 0.14 per cent.
The final fund from the group is L&G Emerging Markets Government Bonds (US$) Index, which is down 3.44 per cent YTD but is the IA Global Emerging Markets Bond’s 11th best performer. It has an OCF of 0.29 per cent.
BlackRock has three passive funds on the list, the best-performer being iShares Global Property Securities Equity Index which is up 3.25 per cent and ranks ninth in the IA Property sector.
It is the third biggest fund on the list with assets under management of £2.2bn and has an OCF of 0.22 per cent.
iShares Overseas Government Bond Index has returned the third-best figure in IA Global Bonds of 1.92 per cent. It tracks the JP Morgan Global Government Bond Index ex UK and has an OCF of 0.17 percent.
The iShares Over 15 Years Gilts Index fund is up 1.76 per cent and is the best performer in the IA UK Gilts sector. It tracks the FTSE Actuaries UK Convention Gilts Over 15 Years Index and has an OCF of 0.16 per cent.
Next is Fidelity’s Index Japan fund, which is up 0.82 per cent YTD and is a top quartile performer in the IA Japan sector. It is the cheapest fund on the list and has an OCF of 0.10 per cent.
The second cheapest fund is also run by Fidelity, Index Pacific ex Japan, with an OCF of 0.13 per cent. Year-to-date, the fund has returned 0.57, the 17th best in the IA Asia Pacific ex Japan sector.
Performance of funds YTD
Source: FE Analytics
The second fund from the IA Asia Pacific ex Japan sector on the list is Pictet Pacific Ex Japan Index, which has gained 0.24 per cent and has an OCF of 0.33 per cent.
The worst performers on the list that still produced a top-quartile figure are found in the IA Global Emerging Markets sector.
FP Henderson Rowe FTSE RAFI Emerging Markets, has the highest OCF of the funds looked at (0.64 per cent) and has lost 3.75 per cent.
Pictet Emerging Markets Index, which tracks the MSCI Emerging Markets index has an OCF of 0.41 per cent and is down 4.51 per cent.