US and European investors have bolted from active funds at their highest rate in three years, pulling more than $35 bn so far in 2019, according to data company Morningstar.
Active investments – the principle of fund managers selecting stocks rather than tracking an index – have been under pressure because of disappointing performance, high fees and growing stock markets.
In addition, passive funds continue to take market share, accounting for 37.5 percent of the fund market in the US, up from 35.5 percent a year ago. In Europe the market share jumped to 18.3 percent, up from 16.6 percent in the same period last year.
Morningstar analyst Dimitar Boyadzhiev observes that the move has two points of focus: first, active funds have been stumped by demanding macroeconomic factors this year, including the much-cited issue of the US-China trade war. Second, there will continue to be a movement in flows out of active and into passive due to the latter’s low fees and strong performance.
Overall, investors pulled €20.9 bn ($23.5 bn) from active funds based in Europe in the five months to the end of May, compared with the same period in each of the previous five years.
In the US, active funds suffered redemptions of $12.9 bn in the five months to the end of May, reversing a trend of positive sales in the same period in 2017 and 2018.
Supporting Boyadzhiev’s argument about the move into passives, Morningstar’s figures show that passive funds had inflows of almost $118 bn in the US in the five months to the end of May, with investors putting a further €22 bn into passives in Europe.
Last year Morningstar found that active funds in Europe had repeatedly failed to outperform passive funds in the past 10 years.