5 February 2016 – ESMA, the EU-wide financial markets watchdog, published a public statement this week following its research into closet indexing.
Closet indexing, also known as index hugging, refers to the practice of fund managers claiming to manage portfolios actively when in reality the fund stays close to a benchmark.
ESMA concluded, based on its research into a sample of 2,600 funds over 2012-2014. that between 5 and 15% of the UCITS equity funds in the EU could potentially be closet indexers.
In the Public Statement, ESMA indicated that it “will continue to work with national regulators to determine further actions as the analysis gives only a first indication of whether particular funds are closet index trackers”.
European Investors believes the issue should be given high priority by ESMA and national regulators. Private individuals who invest in these funds are simply being misled as they do not receive the services the fund manager claims to perform and are still charged fees higher than those charged for passive management.
Click here to read the Public Statement issued by ESMA.