Net retail sales of passive tracker funds hit a record £590m during October, according to the Investment Management Association - the highest level since July, when net retail sales hit £558m.
Tracker fund assets under management totalled £89.3bn at the end of October 2014, taking their overall share of industry funds under management to 10.9 per cent - their highest level to date - up from 9.7 per cent in October 2013.
Tracker fund provider Legal & General Investment Management predicts tracker funds' share will continue to grow significantly, reaching 19 per cent of industry funds under management by 2020.
"A combination of volatile markets and a focus on the total cost of ownership has resulted in a continued interest in passive funds," said Adrian Lowcock, head of investing at AXA Wealth. "This is a trend we expect to continue as investors combine active managers in areas such as the UK, with low-cost passive funds to access markets such as the US where there isn't a great active choice available."
Laith Khalaf, senior analyst at Hargreaves Lansdown, said recent cuts in the costs of tracker funds by a couple of the major players - Legal & General and Vanguard - have also helped boost their popularity, although L&G's cut did not come into effect until 1 November. "Tracker funds increasingly offer investors access to a low-cost core and explore portfolio strategy," he says.
Legal & General Investment Management has applied reductions of up to 55 per cent on the ongoing charges on a number of its index funds. The reduced charges apply to the I unit class of the funds, which are available on platforms or via advisers.
Legal & General Investment Management fee cuts
Fund | Former ongoing charge (%) | Ongoing charge since 1 November (%) |
L&G All Stocks Gilt Index | 0.18 | 0.15 |
L&G All Stocks Index Linked Gilt Index | 0.18 | 0.15 |
L&G European Index | 0.2 | 0.12 |
L&G Global 100 Index | 0.26 | 0.14 |
L&G GEM Index | 0.43 | 0.33 |
L&G International Index | 0.31 | 0.14 |
L&G Japan Index | 0.19 | 0.15 |
L&G Pacific Index | 0.22 | 0.19 |
L&G Short Dated Stlg Corp Bond | 0.21 | 0.15 |
L&G Sterling Corporate Bond | 0.19 | 0.15 |
L&G UK 100 Index | 0.18 | 0.1 |
L&G UK Index | 0.17 | 0.1 |
L&G US Index | 0.18 | 0.1 |
Source: Legal & General Investment Management
Vanguard's fee cuts took effect from 1 September. The ongoing charges of its index funds now range from 0.08 per cent to 0.38 per cent, although for some funds you have to pay a purchase cost to compensate for Stamp Duty Reserve Tax expenses.
Although tracker funds generally have low charges, how you choose to buy them will also affect your ultimate cost as some investment platforms charge far more than others.