Passive funds merely track an index such as the FTSE 100, and tend to have lower charges. Moneynetcredit cardssearch The fund management industry – or, at least that part of it which makes most of its money from actively investing in stocks and shares – this week slapped Ron Sandler’s face and challenged him to a duel. But last week – with prodding from pro-active groups such as Fidelity – the IMA’s chief executive, Richard Saunders, described as “plain wrong” Sandler’s assertion that active management was a cause of under-performance. He added: “At first I wasn’t expecting the active fund management issue to be quite such a prominent part of the discussions about Sandler, but it has since become more prominent Index-trackers cannot, by definition, get the market return. Anybody who tries to replicate the index will under-perform because of the costs of being in the market.

The worrying trend is that, rather than seeing an attempt to force everyone into index trackers, we may see everyone being forced into a 1 per cent price straitjacket with Sandler’s stakeholder products.” That would be difficult for active funds, where the charges are generally more than 1 per cent.The anti-passive campaign puts the IMA in an awkward position because, as Mr Saunders admits, his body represents both active and passive fund managers, and many management groups promote funds devoted to both disciplines.The most notable advocate of the passive approach among IMA members is Virgin Money, part of Sir Richard Branson’s sprawling empire. Virgin’s marketing manager, Gordon Maw, said: “I think the IMA has got its knickers in a twist, because the right arm clearly doesn’t know what the left is doing. Obviously some members have kicked up a fuss, and it’s turned into a comedy of errors. The industry has panicked a bit, because they are worried that Sandler will leave them exposed.

But we want people to make more informed decisions, and Sandler is attacking the selling process as much as anything else. Our position is well known and we remain the big advocates of tracking. We believe there’s a place in most people’s portfolios for tracking, and the WM research firm has shown that there is a 70 per cent chance that a tracker will do better than an active fund over five years. With both active and passive funds you take a market risk, but with active funds you also take the risk that the fund manager might not pick the right stocks.”The strongest supporter of active management is Richard Wastcoat, managing director of Fidelity Investments, the UK market leader. He said: “We feel passionately about the active versus passive issue, and since Sandler things have evolved around the question of whether his proposals are the right way to encourage people to save.

Is the answer simplification and price-capping, or are there other means that might work better?”With active management, you give investors a chance to achieve outperformance, particularly in the current environment, and it is wrong to suggest that people can’t work this out for themselves. Why have Fidelity, Invesco, Jupiter and others succeeded in the past 20 years? Not because of established brand names, but because of good performance. Our greatest concern is that Sandler gives the impression that index funds are somehow safe, but active funds are not. In fact, active funds are fine for people who have a spread of funds and take a long view.”The other out-and-out fan of active management is the £47bn Threadneedle Investments, part of Zurich Financial Services. Threadneedle’s Richard Eats said: “In a free market, the Government should not be prescribing product choice and investment style for people. Some don’t want risk, and for them the passive approach is perfectly viable, but some want to be more aggressive.