For the first time ever, passive index funds own more of the U.S. stock market (16%) than actively managed funds (14%). The change represents a rapid reversal from only ten years ago when actively managed funds owned 20% of the market, and passively managed funds owned a mere 8%. Steve Johnson reports for the Financial Times:
Passively managed index funds have overtaken actively managed funds’ ownership of the US stock market for the first time, data show.
Passive funds accounted for 16 per cent of US stock market capitalisation at the end of 2021, surpassing the 14 per cent held by active funds, according to the Investment Company Institute, an industry body.
The pattern represents a sharp reversal of the picture 10 years ago, when active funds held 20 per cent of Wall Street stocks and passive ones just 8 per cent.
Since then, the US has seen a cumulative net flow of more than $2tn from actively managed domestic equity funds to passive ones, primarily ETFs.
“It’s the latest milestone to fall [to index funds]. It’s been a slow build for decades now,” said Kenneth Lamont, senior fund analyst for passive strategies at Morningstar.
“It does raise questions of what the endgame is. Passive is only efficient as the active players in the market make it. We probably have some way to go before passive becomes less efficient, but it does raise questions as to where the equilibrium should be.”
The seemingly unstoppable rise of index-tracking funds has in turn helped fuel an unprecedented concentration of ownership — and thus voting power.
The five largest mutual fund and exchange traded fund sponsors — out of 825 in all — accounted for 54 per cent of the industry’s total assets last year, the ICI found, a record high and up from just 35 per cent in 2005.
The 10 largest control 66 per cent of assets (against 46 per cent in 2005) and the top 25 as much as 83 per cent, up from 67 per cent. The proportion of assets held by the many hundreds of managers outside the elite 25 has thus halved over the period.
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