This is an interesting research piece that evaluates the feasibility of replicating the performance of an active equity fund with a combination of one or more tracker funds. Past research has shown that at least 30% of an aggregated blend of active-only funds closely resembles the SWIX Index. However, by replacing this de-facto passive core with a SWIX tracker, the new combination of 70% active-only and 30% SWIX tracker doesn't really solve the problem. This is because the 70% active-only blend will still have a de-facto passive SWIX core, therefore when this is blended with the 30% SWIX tracker, you are left with an overall active tracker blend that has 'watered down' alpha potential - albeit at a lower overall fund cost. The aim of this research was therefore to reduce costs through the introduction of tracker investments WITHOUT sacrificing the future alpha potential of the new active tracker blend.
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