Bloomberg News

U.K. Savings in Index Funds Reached Record in 2011, IMA Says

February 13, 2012

Feb. 13 (Bloomberg) -- British retail investors pumped a record 1.9 billion pounds ($3 billion) into index-linked funds in 2011, as low interest rates encouraged savers to quit holding cash.

Net sales of the so-called tracker funds rose 10 percent from the 1.7 billion pounds in 2010, the Investment Management Association said today in an e-mailed statement. U.K. funds under management dropped 0.3 percent to 571 billion pounds.

“You can’t get an inflation-beating yield from cash so we’ve got lots of investors looking for yield from equity and bond passive funds,” said Danny Cox, head of advice at Hargreaves Lansdown Plc, the U.K.’s biggest retail broker. “There has been a lot of noise about charges and performance. If you are dipping your toe into the equity markets for the first time then a tracker is a decent place to start.”

Index-lined funds, which mirror specified benchmarks such as the FTSE 100 Index of leading U.K. stocks, make up about 7 percent of the U.K.’s total funds under management. Their annual charges can be as little as a tenth of actively managed funds, according to Hargreaves Lansdown. The Bank of England last week kept its interest rate at a record-low of 0.5 percent.

About 66 percent of actively managed U.K. funds underperformed their MSCI index benchmarks in the first 10 months of 2011, according to Vanguard Group Inc., which manages $1 trillion in U.S. mutual-fund assets and specializes in index- linked funds.

--Editors: Jon Menon, Keith Campbell

To contact the reporter on this story: Kevin Crowley in London at kcrowley1@bloomberg.net

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net;


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