Traditional beta-index exchange traded funds are carving out a larger slice of the fund market share as investors turn to passive, index-based styles to better capture market returns.
In the 12-months ended Jun 30, passive funds have brought in 68% of asset inflows, with ETFs making up 35% and passive mutual funds 33%, while actively managed mutual funds brought in 32% of assets, writes John Rekenthaler, V.P. of research for Morningstar.
Of the $134 billion, active funds attracted, $30 billion were in target-date funds, so active management really brought in about $100 billion in assets.
“Target-date sales are in a sense accidental, as target-date funds sell into a captive audience that must purchase funds from the target-date family that is placed in front of it,” Rekenthaler said. “After all, it’s not as if those investors deliberately chose active fund management. And that happy accident is dissipating.”
Instead, more investors are turning to passive investments as an alternative, with Vanguard gaining market share.
The largest discrepancy between in active and passive funds was in U.S. stocks. Net sales in active equity funds was negative $15 billion, whereas passive funds saw a positive $64 billion in sales.
Active funds, though, outsold their passive competitors by a 3-to-1 margin over the past 12 months, excluding ETF sales. However, active international stock funds will have to generate better performances if they want to maintain their lead. For instance, the Vanguard Total International Stock Index (VTIAX), the mutual fund version of the Vanguard Total International Stock ETF (NYSEArca: VXUS), has outperformed the average foreign large-blend fund by 0.70% per year. Additionally, the Vanguard Total Stock Market Index (VTSAX), the fund version of the Vanguard Total Stock Market ETF (NYSEArca: VTI), is 1.0% above its category average.
Top international funds tend to remain top of their class. However, passive fund options are quickly gaining, with the Vanguard Total International Stock Index among the top 20% of its group.
For more information on passive ETFs, visit our indexing category.
Max Chen contributed to this article.