Global Passive Equity Funds Set to Overtake Active Funds

Passively managed equity funds are on the cusp of marking a milestone that’s been more than a decade in the making: Globally, net assets in such products are about to exceed those of their actively managed counterparts, according to Societe Generale.

The “fund industry is about to pass a symbolic milestone,” potentially in March or April, based on monthly data from EPFR Global, wrote a SocGen team led by Arthur Van Slooten.

“Obviously, this is mainly a symbolic hurdle, but we can be reassured by the fact that US equity funds passed it in a convincing way mid-2021, apparently without any major hiccups,” they wrote.

Passive strategies have been gaining market share for years thanks to characteristics like lower management fees. In the US, passive investing has risen steadily. At least 19% of the shares of the average publicly listed US stock is owned by passive mutual funds or passive ETFs, tripling since 2013, according to an analysis by James Seyffart at Bloomberg Intelligence. Adding other structures would raise that toward 30%, he said.