Investors flock to computer-run funds as managers fail in market sell-off

Jonathan Jones 22 April 2020 6:00am BST Investors have been piling money into passive funds during the coronavirus pandemic as active fund managers failed to beat the market in a downturn,

supposedly one of the selling points of human stock pickers. In total, £244m was withdrawn from global markets in March, according to research firm Calastone, but this relatively benign

headline figure hides a deeper trend.  Overall £1.4bn was added to passive funds, which aim to mirror a market or sector, while £1.7bn was removed from active funds, which aim to use stock

selection to outperform the wider market. Robin Powell of the Evidence Based Investor, a financial advice blog, said he was “unsurprised” by the switch from active funds to passive as fund

managers have failed to earn their crust. In Britain, fewer than half (43pc) of the funds run by managers have beaten the FTSE All-Share index – a benchmark for the stock market – so far in

2020.  The same is true in Europe, while just 22pc of active funds investing in emerging economies have beaten the MSCI Emerging Markets index since the start of the year. “Active managers

have yet again failed to live up to the hype. They said they would cushion us from the full extent of market falls, but in the event, they failed miserably,” Mr Powell said. David Wilson,

39, runs his own freelance security firm specialising in the film industry. He typically invests in stocks but has recently started purchasing passive tracker funds as well as he reckoned it

would be hard to determine all of the best performers in the coming months. “When the market rebounds I don’t want to miss out,” he said.  How have active funds fared in 2020? However, Andy

Merricks of 8AM, a wealth manager, said whether to invest now the market has fallen is dependent on how long investors are going to keep their money in for. “If you think that stocks are

going to be higher than they are today in, say, five years’ time, then you may as well add to your portfolio now and a passive fund is probably as good a way as any to do so,” he said.

However, if the money is needed in the near-future, this may not be a wise strategy. After the crash of 2008 there were several times investors thought the worst was over, only for the

market to fall further. “Today’s situation is worse than in 2008 so I expect a similar thing to happen now,” Mr Merricks said, “we are fully expecting more falls before we can confidently

predict that the worst is over.”