2017 is a difficult year to be an active fund manager. Passively managed products have well and truly taken off.
Exchange traded funds (ETFs) have grown to amass US$4tn in assets globally, up from US$1tn in 2009. One fifth (22%) of publicly traded shares in the US equity market are now owned by passively managed funds. Like retail, media and transportation, the funds management industry has felt the force of disruption.
While these numbers spell gloom for active managers around the world, the US market is ahead of the curve. ETFs held $26.1bn in assets in Australia at the end of February this year, up 20% from the previous year. While growing, the rate has been slower in part due to lack of understanding in the Australian market about what an ETF is, and hence lack of confidence to invest in one.
CoreData is currently undertaking investor research on managed funds and ETF products, and in addition to uncovering the need for education of the masses, the research revealed the early movers into ETFs speak about them in glowing terms and generally consider them superior to the expensive, actively managed alternatives.
Low fees are the primary driver of growth in the ETF space. Most ETFs are available at a cost 10-15 times less than actively managed funds. However, their relative performance has assuaged concerns among some investors that ‘you get what you pay for’.
Research conducted by S&P Dow Jones Indices found that only 10% of Australian managed funds outperformed their benchmark index over the three years to the end of 2016. Active managers aren’t expected to beat their index every quarter, but these statistics offer damning insight about whether managed funds can continue to compete.