Actively Managed Funds Losing Out to ETFs

November 2nd at 11:00am by Tom Lydon

Passive indexed fund options including ETFs continue to gather steam, whereas actively managed funds are bleeding assets as investors have little to show for the high manager fees.

According to Morningstar, about $144 billion flowed into passive funds over the past five years while actively managed funds lost over $460 billion, writes Gregory Leonberger, Director of Research, for Marquette Associates.

Since the equity markets have traded on macroeconomic factors over the past couple of years, Leonberger suggests that fundamentally-based managers have had a tough time in adding value. [ETF Performance Beats Active Management]

The bond bull market has also gathered more assets as investors tried to preserve their capital in light of the volatile markets and steered investors away from equities.

In addition, investors are becoming more wary of investment fees, and the lower fees in passively managed products have helped draw greater investment interest. [Investors Like ETFs’ Low Fees as Active Managers Lag Benchmarks]

“The cloudy economic outlook suggests that this trend may continue,” Leonberger said in the article. “Whether it is a short term uncertainty such as the fiscal cliff or a longer-term matter about the future of a regional currency (Europe), it is conceivable that the market will remain a risk on / risk off trade over the next few years. Therefore, we may see continued flows into passively managed funds in the equity markets.”

For more information on ETF indexing, visit our indexing category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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