MONEY COMMENT
Get A Real Tracker, Not A Closet One

By Jane Mack (TMFJane)
May 6, 2003

A couple of months ago the Legal & General (LSE: LGEN) claimed that nearly 7 out of 10 actively managed funds could be closet trackers and that investors could be wasting up to £125m a year in management fees as a result.

The issue has been in the news again this weekend after the high-flying fund manager Nicola Horlick was accused of running a closet tracker for one of her biggest clients, Sir Mark Weinberg, chairman of the life assurer, St James's Place Capital (LSE: STJ). He claims that instead of actively choosing shares that would beat the index, she's chosen rather too many shares from the index itself – effectively running a closet tracker.

Ms Horlick, who has been described as "superwoman" for juggling a large family and a lucrative career in the City, hit the headlines in 1997 when she was suspended by Morgan Grenfell for alleged disloyalty. Five years ago she launched UK arm of Société Générale Asset Management, which invests large sums for institutions such as pension funds and in her first year topped the list of the year's most successful investment fund managers

However, Sir Mark Weinberg has now withdrawn her mandate to run his company's £500m investment portfolio after being advised by a firm of specialist consultants that she was effectively running a closet index tracker at vast expense. Not surprisingly Ms Horlick is furious at the accusation and vehemently denies it – after all, her reputation as a star fund manager is at stake.

Regardless of the reality of the situation, investors do need to keep an eye on money they have entrusted to active fund managers, particularly in light of Legal & General's research. Quite apart from the fact that index trackers are generally much better value, you may find that you're not getting what you've paid for anyway. If you want to buy an index tracker, get a real one. It's much cheaper.

Find out more about Index Trackers.