22 May COTW: Convergence of Active and Passive U.S. Equity Funds
- Morningstar recently published their April Fund Flows report. Per the report: “at the end of April passive U.S. equity fund assets essentially reached parity with active U.S. equity funds at $4.3 trillion each”. Contrast that with the balance back in 1998 when there were 6.5 times as many assets in actively managed U.S. stock funds as in index funds.
- The primary reason for the shift in investor preference has been the inability of most higher-priced active managers to beat their passive peers (or self-assigned benchmarks). In contrast to the growth in market share of index funds in U.S. stocks, many other asset classes with less trading volumes and liquidity, lower analyst coverage and access to information continue to be dominated by active managers.
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