Every index tracker in the IA Global Emerging Markets sector bar one has posted first-quartile returns over 2015 so far while passives are pipping their active rivals to the post in several other peer groups, the latest FE Trustnet study shows.
Index trackers now account for 11.5 per cent of assets in the Investment Association universe, with a collective £100.9bn being managed in these types of products. Indeed, trackers posted net retail sales of £938m in March this year – their highest on record.
With this in mind, FE Trustnet has looked through our data to find out how all the trackers in the Investment Association universe have performed in the more volatile conditions of 2015 so far.
A standout finding is that six of the seven index trackers in the IA Global Emerging Markets sector are turning in first-quartile total returns over the year to date, with the seventh sitting at the top end of the second quartile.
As the graph below shows, the average passive fund in the sector has made 9.32 per cent over the year to date compared with the 6.27 per cent made by the typical emerging markets fund. In fact, the average tracker has narrowly outperformed the MSCI Emerging Markets index.
Performance of passives vs sector and index over 2015
Source: FE Analytics
FP Henderson Rowe FTSE RAFI Emerging Markets is the highest returning emerging market tracker in 2015 with an 11.52 per cent gain. This places it second in the sector overall, being beaten only by Carmignac Emergents’ 13.72 per cent return.
Other top-quartile trackers in this sector include GS GIVI Growth & Emerging Markets Equity Portfolio, L&G Global Emerging Markets Index, BlackRock Emerging Markets Equity Tracker and Vanguard Emerging Markets Stock Index.
Emerging markets are often highlighted as an area where active managers can shine, as the vast differences in the market means there are inefficiencies that can be exploited by a stock-picker.
However, one professional investor who is taking a passive route at the moment is Bill McQuaker, head of multi-asset at Henderson, as he wants exposure to areas that are relatively ignored by active managers.
“We want plain, vanilla cyclical emerging markets exposure and a lot of companies that make up the index are lowly valued and low quality,” the multi-manager (pictured) recently told FE Trustnet. 
“Although emerging markets have done badly, certain active managers have been able to perform well by focusing on quality. However, we want to buy areas which have been hurt badly over the last five years rather than areas that have performed the best.”
McQuaker is taking his exposure through the iShares MSCI Emerging Markets UCITS ETF, rather than a conventional tracker in the Investment Association universe.
Our data shows the trackers in other peer groups are performing relatively well. There is one tracker in the IA Global Emerging Market Bond sector, for example, and it is up 2.14 per cent against just 0.88 per cent from its average peer.
In the IA Global Bond sector, six of the nine tracker funds are in the first or second quartile. While the typical member of this peer group has lost 0.70 per cent over 2015 to date, the average passive vehicle is down only 0.24 per cent.
Performance of passives vs sector over 2015
Source: FE Analytics
Royal London Global Index Linked is the index tracker leading the pack with a 1.38 per cent return. It holds an FE Passive Fund Rating of three based on its fund size, tracking error and tracking difference over recent years.
All of the other outperforming passives in the IA Global Bonds sector – L&G Global Inflation Linked Bond Index, Standard Life Investments Global Index Linked Bond, Vanguard Global Short Term Bond Index Hedged, Vanguard Global Bond Index and Standard Life Investments Short Duration Global Index Linked Bond – have all made positive returns so far this year.
Last month, Brewin Dolphin said a passive fund was its preferred way of accessing global bonds and highlighted Vanguard Global Bond Index as an attractive option.
The wealth manager wants exposure to the US bond market but this is being overlooked by many active managers at the moment, who are searching for opportunities in higher yielding areas of the market such as emerging market debt.
Ben Gutteridge, head of fund research at Brewin Dolphin, said: “Our preferred means to achieve a diversified position in the global bond market, yet retaining a significant weighting in US bonds, is via the Vanguard Global Bond Index fund.”
“This is a passive strategy, but is one of only very few options providing the exposure we most specifically require. Most active managers are avoiding US bonds giving the longer term trends in the US economy and what this might mean for treasuries.”
Within the popular IA UK Equity Income sector, there is only one index tracker – Vanguard FTSE UK Equity Income Index. This is currently second quartile year to date with a 9.48 per cent return, but it has just underperformed its benchmark.
Performance of fund vs sector and index over 2015
Source: FE Analytics
The IA UK Gilts sector is another where its passive members have had a relatively strong start to the year, with five of its six trackers outperforming. In IA UK Index Linked Gilts, half of the 16 trackers are beating the sector average while three of the six corporate bond trackers are ahead of their peers.
