Date: 5th December 2019

Already back in 2014 BETTER FINANCE denounced the practice of closet indexing. It launched a campaign against those funds that claim to be “actively” managed but that are in fact merely following market indices, although they charge much higher fees than low cost index-tracking funds such as ETFs. The distribution of such funds as “active” funds is very misleading to the investor and causes detriment because the investor is paying for a service that he is not actually receiving.

Although refraining from calling it by its name, the UK's Financial Conduct Authority (FCA) has now fined Henderson Global Investors for engaging in exactly this practice and misleading individual investors.

"In November 2011, Henderson Investment Funds Limited's (HIFL) appointed investment manager, Henderson Global Investors Limited (HGIL), decided to reduce the level of active management of its Japan and North American Funds. The subsequent treatment of retail investors in these funds was substantially different from its treatment of the institutional investors in the same funds.

HGIL informed nearly all of the institutional investors who were affected by this change and offered to manage these two funds for those investors without charge. In contrast, HGIL did not communicate the change in investment strategy to any of the retail customers either by amending the funds’ prospectus or otherwise. This meant that for nearly five years HGIL charged these investors the same level of fees as it had before the decision was made without providing the same level of active management."

Read the full article here.