As the race to the bottom on fees gains pace, the active vs. passive debate heats up
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As the race to the bottom on fees really gains pace, the active vs. passive debate is heating up. More traditional mutual fund providers are launching passive ETFs on a weekly basis and recently Goldman Sachs Group Inc. was said to be “almost giving handouts to its customers” with the price of some of its new smart-beta funds.
The firm is offering one new fund that will charge just nine basis points for a portfolio with exposure to a basket of large-cap stocks that all have the same allocation, which is less expensive than any other comparable equal-weighted fund, including the world’s largest and most traded ETF -- State Street Corp.’s S&P 500 ETF Trust.
Competition is intensifying as investors shift more assets into passive index-linked funds but there is skepticism among some investors who feel that these types of ETFs are unproven and relatively untested. There’s a fear that the passive approach will falter and prove damaging for portfolios if there is a major correction.
Nevertheless, as was discovered by PWC’s recent Asset Management 2020: Taking stock study, “asset flows away from traditional active management and towards passive and alternative strategies are accelerating…. As a result, the overall proportion of actively managed traditional assets under management is shrinking.”
The report predicts that active managers’ share of all global assets under management will decline to 66% in 2020, while investments in passive products will grow to 22%, and the amount of AUM in alternatives will rise to 13%. To give these numbers some context, in 2015 active managers controlled 74% of global AUM, passive products had a 14% share and alternatives accounted for 11%.
As a result of this significant shift, passive managers’ global assets under management will soar from US$ 11.3 trillion in 2015 to US$ 23.2 trillion in 2020. The AUM of alternative investments will jump from US$ 9.0 trillion to US$ 13.9 trillion and active managements’ global AUM will rise to US$ 74.0 trillion from US$ 58.4 trillion in 2015.
“Within alternative management, we believe that real assets, private equity and new types of private debt funds will take on a stronger role in driving growth,” the report stated. “Hedge funds will not fare so well, after a period of disappointing returns.”
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The firm is offering one new fund that will charge just nine basis points for a portfolio with exposure to a basket of large-cap stocks that all have the same allocation, which is less expensive than any other comparable equal-weighted fund, including the world’s largest and most traded ETF -- State Street Corp.’s S&P 500 ETF Trust.
Competition is intensifying as investors shift more assets into passive index-linked funds but there is skepticism among some investors who feel that these types of ETFs are unproven and relatively untested. There’s a fear that the passive approach will falter and prove damaging for portfolios if there is a major correction.
Nevertheless, as was discovered by PWC’s recent Asset Management 2020: Taking stock study, “asset flows away from traditional active management and towards passive and alternative strategies are accelerating…. As a result, the overall proportion of actively managed traditional assets under management is shrinking.”
The report predicts that active managers’ share of all global assets under management will decline to 66% in 2020, while investments in passive products will grow to 22%, and the amount of AUM in alternatives will rise to 13%. To give these numbers some context, in 2015 active managers controlled 74% of global AUM, passive products had a 14% share and alternatives accounted for 11%.
As a result of this significant shift, passive managers’ global assets under management will soar from US$ 11.3 trillion in 2015 to US$ 23.2 trillion in 2020. The AUM of alternative investments will jump from US$ 9.0 trillion to US$ 13.9 trillion and active managements’ global AUM will rise to US$ 74.0 trillion from US$ 58.4 trillion in 2015.
“Within alternative management, we believe that real assets, private equity and new types of private debt funds will take on a stronger role in driving growth,” the report stated. “Hedge funds will not fare so well, after a period of disappointing returns.”
Related stories:
Family offices are not looking far enough ahead
Why fees on investments undervalue advisors
