Passive fund top of pops

A PASSIVE fund that simply aims to match the performance of the US stock market has become the largest fund in the world.

Since 2008 the title has belonged to bond investor Bill Gross, the head of Pimco. Gross’s Pimco Total Return fund has $247.9-billion in assets, but has lost $37.5-billion so far this year as a large number of investors have moved away from bonds in favour of shares.

Investors have rushed for the exits amid concerns that an earlier-thanexpected interest rate rise could hurt bonds.

The Pimco fund has been usurped by the Vanguard Total Stock Market Index fund, which aims to replicate the performance of the US stock market as opposed to beating it.

The fund, which was launched in 1992, now has $251-billion in assets.

Its popularity has soared in recent years, as has “passive” investment more generally.

Passive funds are typically much cheaper than traditional funds as there is no need to pay a professional to manage your money.

For example, a tracker fund might charge 0.25% where an “active” fund might charge 1.7%.

In the case of Vanguard Total Stock Market Index fund, investors need to pay only 0.17% a year.

So the tracker fund is, in theory, always 0.25% behind the index.

Active fund managers, by contrast, need to beat it by 1.45% to justify their higher fee — and many fail, which is why thousands of investors prefer investing in passive funds as opposed to funds run by a human.

In the US, more than 25% of fund investments are run by a computer instead of a fund manager. — © The