Sunday May 1 2016
News Source: Fund Regulation
Focus: Closet Trackers
The Autoriteit Financiële Markten (AFM) has published a report on index hugging, alternatively know as closet trackers. The report identified that 7 out of the 85 funds investigated by the AFM are closet trackers. In 2014, these 7 index huggers together managed nearly half a billion euros worth of assets.
If a fund stays too close to the benchmark, the potential to offer added value in the long term is too small to justify the higher costs.
The Report contains a number of recommendations aimed at preventing index hugging. These include, but are not limited to:
- a continuous product approval and product reviews process in order to assess the functioning of the fund;
- a manager of an active investment fund should adjust the investment policy of the relevant fund. The investment policy should be aimed at offering a fund which is able to beat the benchmark; and
- a manager of an active investment fund should provide its clients with certain information (e.g. publication of the active share and investment policy).
Click here for report on potential index huggers.
Click on the link above for further information.