The power of passive Copy

Passive funds’ popularity touches the entire industry, particularly as investor preference for low-fee products prompts asset managers to tighten their belts. Bloomberg, which first reported the news, cited data from PricewaterhouseCoopers forecasting a 14% decline in the number of funds and a 22% drop in expense ratios by 2025. However, according to Morningstar’s semiannual Active/Passive Barometer—which measures active funds’ odds of success across several areas—active funds’ success rates are still relatively strong. In the 12 months ending in June 2019, 44% of active funds beat the passive composite for their category, according to the Morningstar’s data.

Despite the assets flowing into passive US equity funds, 48% of active US stock funds outperformed their passive peers in the 12 months through June 2019, up from 37% in the 12 months to June 2018. Active funds’ performance faltered in the long term, however. Morningstar’s data showed only 23% of active funds topped their rivals for the 10-year period ending in June 2019. Morningstar’s study also found that in the 10-year period to June 28, 2019, cheaper funds had a 33% success rate compared to pricier funds’ 14% success rate.