ETFS LEAD: PASSIVE FUNDS ECLIPSE ACTIVELY MANAGED ASSETS
In a notable shift, passive US mutual funds and exchange-traded funds (ETFs) have outpaced their active counterparts in total assets, totalling $13.3tn compared to active funds’ $13.2tn by the end of December. This milestone marks the culmination of a trend that began with the launch of Vanguard’s first index mutual fund in 1976, challenging the notion that active stock pickers consistently outperform the market over the long term.
Over the past decade, passive funds, including ETFs, have seen steady growth, commanding about a quarter of the US mutual fund and ETF market. The ascendancy of passive strategies has been fuelled by the enduring popularity of ETFs, which trade on exchanges like stocks, providing investors with a cost-effective way to gain exposure to a diversified portfolio. This development follows the previous milestone in 2022, when passive funds overtook active funds in their share of US stock market ownership.
Despite occasional periods of outperformance by active managers, the broader industry has witnessed a structural shift. The appeal of replicating benchmarks, reducing fees, and achieving a more straightforward investment approach has led asset managers and advisers to embrace passive strategies. Even with the recent rise in actively managed ETFs, which attracted over $126bn in 2023, index-based funds continue to form the core of most investment portfolios.
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