Slideshow Active vs. Passive: Where Money's Flowing

Published
  • October 08 2014, 5:06pm EDT
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Active vs. Passive: Where Money's Flowing

Many studies have shown that it's difficult for active managers to consistently outperform their benchmark indexes. Recent data from Morningstar seems to show that investors are beginning to get that message.

At the end of August, long-term U.S. funds and exchange-traded funds held $13.85 trillion in assets. Although slightly more than 71% of those assets were in portfolios using active management, Morningstar notes that growth of fund flows to actively managed assets was a mere 2% over the past year vs. 11% organic growth in flows to passive investment portfolios.

In two smaller fund categories, sector equity and commodities, passive assets have come close to or eclipsed active. In sector equity, passive funds hold 46% of assets. In commodities, indexing accounts for 64% of assets.

Here’s how assets are flowing into and out of all long-term funds and
eight fund categories. —Joseph Lisanti

Click here to view this list in a single-page version.

Source: Morningstar Direct Asset Flows, all data as of end of August, 2014.

ALL LONG TERM

Many studies have shown that it's difficult for active managers to consistently outperform their benchmark indexes. Recent data from Morningstar on fund flows seems to show that investors are beginning to get that message.

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U.S. EQUITY

U.S. Equity is a category that includes funds of large, mid-cap and small stocks in style groupings of growth, value and blend. The group also includes leveraged net long funds. During the year ended August, passive flows have trounced active.

SECTOR EQUITY

Sector Equity includes 14 industry groupings from communications through utilities, as well as a miscellaneous sector. Over the past year, passive funds in this category added $43.1 billion vs. $17.7 billion for active.

INTERNATIONAL EQUITY

International Equity includes country- and region-specific funds as well as generalized foreign funds. The latter are split into large and small/mid sizes as well as into growth, value and blend styles. Passive strategies took in 52.4% of the past year’s net flow into this category, but active managers still hold 68.4% of assets.

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ALLOCATION

The Allocation category includes descriptive sub-categories such as conservative, moderate and aggressive. It also includes target date funds and convertibles. Active funds dominate this category with 96% of assets and 94% of the past year’s flows.

TAXABLE BOND

The Taxable Bond fund category holds a wide range of fixed-income subgroups, including governments, corporates, high-yields and emerging-markets. Maturities range from long to ultrashort. Also in the category are preferred stock funds and bank loan portfolios. Passive flows were strong over the past year at $63.1 billion vs. active at a little less than $10 billion.

MUNICIPAL BOND

The Municipal Bond category includes national portfolios, broken out by maturity, as well as single-state categories. Larger issuers, including California and New York, get their own sub-categories. Over the past year, $10.7 billion flowed out of active muni funds while $2.3 billion was added to passive funds in the category.

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ALTERNATIVE

Alternative includes bear market funds, market neutral portfolios, volatility funds and a group of trading portfolios. The latter attempt to return a fixed multiple (or an inverse fixed multiple) of a benchmark over a short time period. Active strategies dominate both fund flows and assets here.

COMMODITIES

Commodities include agriculture, energy, industrial metals, precious metals, broad basket and miscellaneous. Investors have taken money out of both active and passive strategies over the past year.