Since January 2020, passive fund market share for mutual funds and ETFs has increased by nearly ten percentage points to 49.7%.

NEW YORK: In terms of asset market share, US passive funds are catching up with US active funds — and by the end of the year, the split could be 50/50.

Since January of 2020, passive fund market share for mutual funds and ETFs has increased by nearly ten percentage points to 49.7% as of September 2023, according to data from Bloomberg Intelligence. That’s compared to 50.3% for active funds.

‘Passive funds are a hair away from becoming the majority of fund assets,’ said Bloomberg Intelligence senior ETF analyst Eric Balchunas.

He believes that in the next month or two, it will hit 50/50, which is a long way from 1993 when passive funds were less than 1% of asset market share.

Additionally, within passive funds, 60% are with equity funds, and 37% are with bond funds, the data shows.

Ryan Jackson, manager research analyst at Morningstar, has a similar take, noting that in the past decade, passive funds have been gradually and steadily chipping away at asset market share.

‘It’s not to say that it’s been straight downhill for active strategies; they still had some pretty good years mixed in there,’ said Jackson.

In the late 20th century and early 2000s, investors were hesitant about passive funds because there was a sentiment that they were ‘settling for average returns as opposed to investing alongside an active manager,’ Jackson explained.

However, Balchunas went on to explain, the 2008 global financial crisis was a ‘pivotal year for passives,’ and the market saw one of the ‘biggest moves from active to passive.’

During this time, it became clear to investors that passive funds were a sensible place to put their money, Jackson added.

The move to passives has held steady, as passive funds have done well against active funds in almost every asset class and Morningstar category, Jackson said.

However, fans of active funds shouldn’t let go of all hope — it’s possible the trend can be reversed if active funds get more competitive with their fees and become cheaper, Balchunas said.

‘They’re going to have to disrupt themselves a little and do some self-cannibalization,’ he said.

The original article can be found on CityWire


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