Adrian Lowcock (pictured right), senior investment adviser at Bestinvest
"Inflows and outflows into ETFs and trackers are actually driving the market. This is a trend that probably won’t last forever, but at the moment you may as well hold a cheap tracker than a more expensive quasi-tracker." "It has become extremely difficult to add Alpha in the US because trackers are so dominant."
"To a lesser extent, I’d also point to the UK large cap market, which is flooded with closet tracker funds that charge a premium for their services. I wouldn’t necessarily recommend a passive fund as there are some very good active funds out there like Schroder UK Core and AXA Framlington UK Select; however, this is an area where investors need to be cost-conscious."
Lowcock points to the simple and low-cost ranges offered by HSBC and iShares as attractive options in the passive market, though he highlights Vanguard as a fund house to watch.
"Vanguard has built a big name for itself in the US, but it has only recently become accessible in the UK," he said. "When you’re looking at tracking error it’s important to have quite a long track record."
"Having said that, they have a good reputation in the US for a reason, and I’d expect them to become more and more popular as time goes on."
Graham Toone (pictured left), head of investment at AFH Wealth Management
"Tracker funds are far more effective when applied to liquid markets like the FTSE 100 and S&P 500, rather than more illiquid small cap markets like the Russell 2000 where it’s impractical to hold every single company on the index." "In these cases there is likely to be far more tracking error, which defeats the point of holding a passive fund."
"Our portfolios [including the Margetts St Johns Realistic Core fund] have a big global focus at the moment, so we like using an ETF or a tracker for a global technology and global healthcare index, for example."
According to FE data, Toone’s £54.1m Margetts St Johns Realistic Core portfolio includes five tracker funds in its top-20 holdings: L&G Global Technology Index, iShares FTSE 250, iShares S&P Global Healthcare Sector Index, iShares S&P Global Consumers Index and iShares S&P Global Industrials Index.
Ben Yearsley (pictured right), investment manager at Hargreaves Lansdown
"Tracker funds are best suited to investors who anticipate a bull market. When the markets are going up, some investors are happy enough to take the Beta. Obviously in down-markets, this is a different story.""You don’t want a tracker in markets where one or two companies make up a big bulk of the index, as this defeats the point of investing in a low-risk fund. India and Russia are good examples of this."