Apr 15, 2020

The Passive Vs. Active Fund Monitor (Year-end 2019)

This report describes the competitive landscape for passively and actively managed funds since 2010 in Canada and the United States.

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In 2019, Canadian passive funds increased their market share from 11.1% to 12% on the back of a positive flow of $15 billion. Meanwhile, Canadian active funds attracted $19 billion. We estimate that Canadian passive funds post a weighted average Management Expense Ratio of 0.28%, compared to 1.59% for active funds. In the U.S., passive funds increased their market share from 37% to 39%. U.S. passive funds attracted $488 billion. Meanwhile, active funds experienced an outflow of $75 billion.

Since 2010, Canadian passive funds have increased their market share from 8% to 12%. During that period, passive funds attracted a cumulative $84 billion in net new money compared to $129 billion for active funds. During the same period, U.S. passive funds have increased their market share from 20% to 39%, and attracted a net money flow of $3.7 trillion, compared to an outflow of $79 billion for active funds.

Overall, passive funds are slowly gaining ground in Canada, while grabbing market share at a fast pace in the U.S. If passive funds keep increasing market share at the current rate, they will represent 50% of the U.S. fund industry by 2025. We also highlight the substantial savings realized by the Canadian investors who choose passive funds. Considering the 1.31% fee difference between active and passive funds, we estimate this net saving to $1.9 Billion dollar for 2019. In our opinion, an active manager needs exceptional skill to overcome such a high hurdle in favor of passive funds and outperform a basic, passive total market fund.

The Passive Vs. Active Fund Monitor (Year-end 2019)

 

About The Author
Raymond Kerzérho
Raymond Kerzérho

Raymond contributes to PWL with his thirty years of experience in investment strategy and fixed income portfolio management.

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