Active funds skid while passive funds surge, fueling the age-old and (seemingly) never-ending passive vs. active investment debate.
According to new research from Boston-based research firm Cerulli Associates, active mutual fund and exchange-traded-fund (ETF) market share continued to erode in 2015, dropping from 77 percent in 2011 to 69 percent in 2015.
Almost one-third (31 percent) of mutual fund and exchange-traded fund (ETF) assets were invested in passive strategies in 2015, up from 23 percent in 2011.
“Investors are questioning active’s value and fee pressure from intermediaries remains prevalent,” Pamela DeBolt, associate director at Cerulli, said in a statement. “Active managers find themselves at a crossroads. They need to determine how to provide alpha in an environment in which the simplicity and low cost of passive appeals to investors and advisors.”
Cerulli’s latest report, “U.S. Products and Strategies 2016: Identifying Opportunities for Active Management,” examines strategies for active managers, the future of the mutual fund, and trends in mutual fund share classes and pricing; ETFs; strategic beta; environmental, social, and governance and socially responsible investing (ESG/SRI); financial advisors’ product preferences; the institutional and retail product landscapes; innovations in target-date funds; and best practices for effective product management organizations.
“Creating products that compete with low-cost passive offerings, such as strategic beta, a hybrid investment approach between active and passive, appeals to active managers that struggle philosophically with managing both active and pure passive,” DeBolt added. “In addition, some managers are focusing on other parts of their product line or capabilities, such as alternatives, multi-asset-class solutions, target-date funds, and asset allocation vehicles. Acquisition of firms with higher-margin products and services is a fast approach to increasing competitiveness.”
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
