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Index funds shouldn’t charge fees, says Alexander Forbes investment chief

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Asset managers have to do more than track indexes if they want to charge clients, says Vladimir Nedeljkovic

Passive asset managers need to do more than just track the index if they want to charge any fee, says Alexander Forbes’s chief investment strategist Vladimir Nedeljkovic.

In 2018, US fund manager Fidelity became the first to launch two zero-fee index funds. In SA index funds charges range from 20 basis points to around 100 basis points or 1%. He however acknowledged that some index funds are doing more than just tracking the JSE All-share Index . He said there is a shift to tracking a host of other indices in order to outperform the average index bucket over time.“Passive is not passive anymore. These days it’s gone to factor investing and to try and look at market efficiencies in a more systemic way.”

Index funds in SA are however not as popular as in the US where about 50% of assets are managed by index tracking managers. Gryphon chief investment officer Reuben Beelders said only about 18% of assets are allocated to index funds in SA.Beelders argued that indexation delivers consistent performance and overcomes inherent biases that active asset managers may have.

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