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Firm challenges UK fund industry on closet indexation

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Investment firm SCM Direct is offering its services, as an expert witness, on a pro-bono basis, to investors wishing to pursue any class action against a UK based investment group due to losses arising from closet indexation.

The firm, led by fund manager Alan Miller, writes: “The UK fund management industry closet indexing epidemic continues to be ignored by the regulator and condoned by industry trade bodies. With no sign of action to eradicate this deception, which amounts to fraud, the British public should consider legal action against UK fund groups.”

New research by SCM Direct reveals that the ten worst offending UK funds cost investors GBP346 million in terms of under-performance when compared to similar index funds during 2014, while 36 per cent of the UK funds are ‘expensive copies of index funds’.
 
The firm writes: “Rolled out across the retail industry, based on these worst ten, this wide spread deceptive practice could have cost investors GBP803 million in 2014. Rather than the purported charge of c. 1.5 – 1.6 per cent pa, the real cost of the genuinely active part of the fund was over 7 per cent pa in the worst two cases.”
 
SCM Direct reports that the average ‘implied’ annual management cost (AMC) of the active part of a UK equities fund was 2.5 per cent pa on average rather than 1.5 per cent pa.
 
“The FCA Chief Executive has been aware of this anti-consumer practice since at least September 2012, but there is no evidence that the FCA has properly investigated these contemptible practices” SCM’s statement says. “In sharp contrast, the Dutch regulator has taken action and investors in Europe (Sweden) are undertaking class actions where similar closet indexing practices have been found.”
 

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