Noel Fessey, CEO European Fund Administration S.A. looks at what is shaping asset management and servicing.
Performance Magazine Deloitte Luxembourg September 2019.

Passive aggressive: here to stay

Passive investing is more popular than ever for a simple reason: on average, active managers under-perform markets  after fees and costs, and those who out-perform do so more by luck than skill. Index funds and passive ETFs, if well implemented, reliably deliver the index less a small cost.
Since most investors do not have the skill to choose good active managers, they are better off going passive.

Influenced by marketing campaigns, low cost, stories of active manager closet tracking, and reforms of practices such
as trailer fees, investors have embraced passive investing. In the US from 1995 to 2017, cumulative net flows into passive funds were US$4.2 trillion compared to US$2.4 trillion into active funds1. In June 2019, Vanguard reported2 that ~40 percent of all US mutual funds were index funds, only ~15 percent of all US equity investible securities were owned by equity index funds, and less than 5 percent of US exchange trading volume was driven by index strategies. Passive investing has further to go—but it is here to stay.

1. Working paper RPA 18-04, Federal Reserve Bank of Boston, 27 August 2018.
2. Don't stop believing in the benefits of indexing, Vanguard website, 17 June 2019.

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