After being disappointed with active managers’ ability to pick stocks that consistently beat the broader market, investors have steadily shifted toward passive investment strategies, like index-tracking funds and ETFs.
Global inflows averaged more than $12,000 a second last year, notably in the U.S. where tax and cost advantages drove investment demand, reports Robin Wigglesworth for the Financial Times. Investors also targeted equity-related passive funds as it is easier to structure cheap ETFs that accurately track the market.
Meanwhile, traditional actively managed open-end mutual funds experienced outflows of a cumulative $1.2 trillion since 2007, whereas inflows into index trackers and ETFs have topped $1.4 trillion over the same period.
The percentage of U.S. equity trading that is made up of ETFs is still below pre-crisis peak in value terms, but it has steadily increased since 2014 and set a new record in volumes in 2016.