Stock funds will experience a record outflow of $450 billion

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Investors have pulled a record $450 billion out of actively managed stock funds this year, as the shift to cheaper index-tracking investments reshapes the asset management industry.

Cash flow from mutual funds has eclipsed last year’s record high of $413 billion, according to EPFR data, and underline how Passive investment And exchange-traded funds are polluting the once-dominant market for mutual funds.

Traditional Accumulation funds They have struggled to justify their relatively high payouts in recent years, with their performance lagged behind gains for Wall Street indexes boosted by big tech stocks.

The exodus from active strategies has gathered momentum as older investors, who traditionally favor them, spend money, and younger savers turn to cheaper passive strategies instead.

“People have to invest for retirement and they have to withdraw at some point,” said Adam Saban, senior research analyst at Maledastar. “The investor base of active equity funds is skewed by age. New dollars are more likely to go into index funds than into mutual funds.

Its share in asset managers lags behind the world’s largest asset manager, with big businesses such as US groups Franklin Resources and T Rowe Price, and UK-based Schroders and Aberdeen. BlackrockWith a large ETF and index fund business. From alternative groups like Blackstone, Kecare and Apollo, they lost a wider margin by investing in unlisted assets such as private equity, private credit and real estate.

T Rowe Price, Franklin Templeton, Schroders and $2.7tn asset manager Capital Group, which is privately owned and has a large mutual fund business, were among the groups experiencing the biggest outflows. In the year 2024According to Morningstar Direct. All declined to comment.

The dominance of U.S. large tech stocks has made it more difficult for active managers, which typically underperform benchmark indexes in such companies.

Wall Street’s Magnificent Seven – Nvidia, Apple, Microsoft, Alphabet, Amazon, Meta and Tesla – posted the biggest US market gains this year.

“If you’re an institutional investor, you assign it to very expensive talent groups that don’t own Microsoft and Apple, because it’s hard for them to get an accurate understanding of a company that’s studied by everybody and owned by everybody,” says Stan Miranda. Founder of Partners Capital, which provides foreign chief investment officer services

“So you generally look at smaller, less followed companies and guess what, all of the Magnificent Seven were underweight.

The average actively managed major U.S. large-cap strategy has returned 20 percent over one year and 13 percent annually after taking fees into account. Similar passive funds offered returns of 23 percent and 14 percent, respectively.

These active funds’ annual expense ratio of 0.45 percentage points paid nine times the 0.05 percentage point for the benchmark tracking funds.

The flow from the collection of mutual funds also shows the growing dominance ETFsfunds that are themselves listed on a stock exchange and offer US tax advantages and greater flexibility for many investors.

Investors poured $1.7tn into ETFs this year, pushing the industry’s total assets up 30 percent to $15 trillion, according to data from research group EFGI.

The rush of flows reflects the growing use of the ETF structure, which includes the ability to trade and exchange the fund’s shares throughout the trading day, for a variety of strategies beyond passive index tracking.

Many traditional mutual fund houses, including Capital, T Rowe Price and Fidelity, are looking to appeal to the next generation of clients by rebranding their active strategies as ETFs, with some success.