Passive investment products remain a driver of growth for asset managers. With investors concerned about high fees and disappointing performances of actively managed funds, passive products grew 4.5 times faster than the asset management industry during the last year. In 2016, the assets under management of products tracking indexes cost-effectively have grown by 18 percent to $6.7 trillion - more than double the eight percent growth seen in 2015.
The AuM of actively managed funds have grown, according to Morningstar data compiled for FTfm, by only four percent. Wayne Bowers, international chief investment officer and chief executive of Northern Trust, tells FTfm that the shift towards passive products is due to “the fees being charged and the performance being generated”. Despite academics showing that active stock picking lacks generating an outperformance in the long term, active funds charge higher fees than passive funds.
However, active funds with AuM of $23.9 trillion still account for the gross of the asset management industry. “I don’t think we have hit peak passive. Investors are voting with their feet, their money,” forecasts Bowers. Monika Dutt, analyst at Morningstar, added that active asset managers must either reduce their fees or change to remain competitive.