UK - Fund managers that track indices are doomed to underperform, according to State Street Global Advisors.
The firm says that unless pension funds get their fund managers to pre-empt changes in the FTSE All-Share Index they will face poor returns.
Senior investment manager Simon Roe said the problem is that as the FTSE Index Committee announces the quarterly date for the index to move, all tracker funds move to sell stocks which are being deleted on the last day before the change.
“This huge volume of selling will push the price down and the investor will suffer,” he said.
Chiswell Associates head of UK equities Nick Bensted-Smith reluctantly agreed but warned that pre-empting the FTSE Index opens another margin for error. He said that a tracker fund can take a small degree of risk to protect itself from everyone in the market.
“These funds will try to pre-empt the actions of the FTSE indices committee.
“It is true that these types of fund are not doomed to underperform, but they may also get it wrong.”
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