For years, active managers blamed a seemingly endless bull market for the rise of low-cost passive investing. But after the market finally crashed last year, investors still favored passive strategies.
By the end of 2020, investors had pulled more than $250 billion out of active U.S. equity funds, according to Morningstar. Passive U.S. stock funds, meanwhile, bounced back from the March sell-off, attracting a net $9.4 billion over the calendar year.
Passive strategies also held steady in Europe, according to Cerulli Associates. Citing Morningstar data, the asset management research and consulting firm said that investors fled actively managed funds at a higher rate in March, causing active strategies to lose 3 percent of their start-of-year assets under management. Passive funds, by comparison, lost 1 percent of their starting assets in March.
“Passively managed funds weathered the market volatility of 2020, highlighting the need for active funds to deliver better and more consistent performances in order to slow the erosion of the marketplace,” Cerulli said in a January report.
By the end of November, European equity index funds had attracted €91.4 billion ($111 billion) in net flows, according to Morningstar. Passive funds as a whole increased their market share to 20.3 percent of European long-term fund assets as of November, Morningstar said.
“Although stock market declines early in 2020 tested passive strategies, the swift recovery in global equity markets meant there was little threat of an exodus to active vehicles,” said Fabrizio Zumbo, associate director for European asset and wealth management research at Cerulli Associates, in a statement.
He added that Cerulli expects passive funds will continue to gain market share in Europe in 2021.
In the U.S., index funds already account for more than half of equity investments, with passive U.S. equity assets amounting to almost $5.7 trillion at the end of 2020, according to Morningstar. Active U.S. equity funds, meanwhile, had $5.2 trillion in assets at year-end, with large U.S. active managers including American Funds, T. Rowe Price, and Franklin Templeton recording net outflows.
“Most large active managers limped into the end of the year,” Morningstar said.