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Investors have pulled a record $450 billion from actively managed stock funds this year, as a shift to low-cost index-tracking investments shakes up the asset management industry.
Outflows from stockpicking mutual funds eclipsed the previous 413bn last year, according to data from the EPFR, and outline the path investment made and exchange-traded funds are closing in on the once-dominant market for mutual funds.
Traditionally storage fee they have struggled to justify their very high fees in recent years, with their performance lagging behind the gains of Wall Street indexes backed by big tech stocks.
The exodus has gathered pace as older, more conservative investors, cash-strapped investors and younger conservatives have turned to less expensive strategies.
“People have to invest for retirement and at some point they have to withdraw,” said Adam Sabban, senior research analyst at Morningstar. “The investor base in active equity funds is aging. New dollars are more likely to go into an index ETF than an active fund.
Shares in asset managers with large portfolio companies, such as US groups Franklin Resources and T Rowe Price, and Schroders and Abrdn in the UK, lagged far behind the world's largest asset manager. BlackRockwhich has a large ETF and index fund business. They lost a wider margin to other groups such as Blackstone, KKR and Apollo, which invest in unlisted assets such as private equity, private debt and real estate.
T Rowe Price, Franklin Templeton, Schroders and the $2.7tn asset manager Capital Group, which is privately held and has a large mutual fund business, were among the groups that suffered the brunt of the big exits. in 2024according to Morningstar Direct data. All declined to comment.
The dominance of large US technology stocks has made it more difficult for active managers, who invest below benchmarks in such companies.
Wall Street's so-called Magnificent Seven – Nvidia, Apple, Microsoft, Alphabet, Amazon, Meta and Tesla – drove most of the US market's gains this year.
“If you're an institutional investor you're giving away a lot of expensive talent groups that won't own Microsoft and Apple because it's hard for them to have a real understanding of a company that everybody's read about and everybody owns,” Stan Miranda said. , founder of Partners Capital, which provides chief investment officer services.
“So now they look at the smaller, less followed companies and guess what, they were all under the weight of Seven.”
The average actively managed U.S. corporate strategy has returned 20 percent in one year and 13 percent annually over the past five years, after taking account of fees, according to Morningstar data. Mutual funds provide returns of 23 percent and 14 percent respectively.
The active fund's annual expense ratio of 0.45 percentage points was nine times higher than the 0.05 percentage point equivalent of benchmark-tracking funds.
The emergence of stockpicking mutual funds also highlights the growing dominance of ETFsfunds that are independently listed on a stock exchange and offer US tax benefits and greater flexibility for many investors.
Investors poured $1.7tn into ETFs this year, pushing the industry's total assets up 30 percent to $15tn, according to data from ETFGI research group.
The rapid entry reflects the growing use of the ETF structure, which provides the ability to trade with value fund shares throughout the trading day, in a wide variety of strategies beyond index tracking.
Many traditional fund houses, including Capital, T Rowe Price and Fidelity, are seeking to please the next generation of consumers by repurposing their active strategies as ETFs, with some success.