Doug Roberts at Channel Capital Research contends that the extremely loose central bank policies have made it harder for active managers to generate alpha. Ever since the financial crisis, the financial markets and stocks have adopted a risk-on and risk-off mindset, with correlations between assets on the rise.
“Once you have everything going up, it’s really difficult for an active manager to outperform,” Roberts said. “He has to be right on the mark. He has to get into something that not only has good long-term fundamentals but also is at an inflection point. That’s no small task.”
Consequently, investors are voting with their wallets, piling into passive index funds. For instance, ETFs now hold about $1.81 trillion in assets under management, a 20% increase over the past 12 months, outpacing the $15.7 trillion industry’s overall gain of 14.8% over the past 12 months. [Passive ETFs Gain Ground Over Active Funds]
For more information on passive ETFs, visit our indexing category.
Max Chen contributed to this article.