As older investors exit the market, funds are rapidly flowing from actively managed funds to ETFs.

According to EPFR data, this year, USA actively managed stock funds experienced an outflow of 450 billion dollars, surpassing last year's historical high of 413 billion dollars. On the other hand, ETFs recorded an inflow of 1,700 billion dollars. Passive investing and ETFs are eroding the market share once dominated by actively managed funds.

Analysts state that in recent years, traditional stock-picking funds have struggled to justify their relatively high fees, as their performance lags behind indices driven by large technology stocks. With older investors, who usually prefer active strategies, leaving the market, younger savers are turning to cheaper passive strategies, accelerating the outflow of funds from active strategies. Adam Sabban, a senior research analyst at Morningstar, stated that:

"The investor demographic for actively managed stock funds tends to be older, and new money entering the market is more likely to flow into Index ETFs rather than actively managed funds."Mutual funds。”

According to Morningstar data, after considering the fees charged by actively managed funds, the annualized return rates for core U.S. large-cap strategies managed actively over the past year and five years are 20% and 13% respectively. In comparison, similar passive funds have return rates of 23% and 14%. It is worth noting that the annual expense ratio for active funds is 0.45 percentage points higher than that of tracking benchmarks.index funds9 times of 0.05 percentage points.

The performance of actively managed fund companies lags behind.

This year, asset management companies with large stock picking businesses, such as Franklin Resources and T Rowe Price in the USA, as well as Schroders and Abrdn in the United Kingdom, have seen their stock prices lag far behind those of the global largest asset management company Blackrock, which has large ETF and index fund businesses.

According to data from Morningstar Direct, T Rowe Price, Franklin Templeton, Schroders, and the private Capital Group experienced the largest outflow of funds in history in 2024.

Analysts say that the dominance of large technology stocks in the USA makes it even more difficult for active funds because, generally speaking, the proportion of active funds investing in these companies is lower than that of the benchmark index. However, the "Mag 7" of the US stock market (NVIDIA, Apple, Microsoft, Alphabet, Amazon, Meta, Tesla) has driven most of the market gains this year. Stan Miranda, founder of Partners Capital, pointed out:

“If you are an institutional investor, you allocate funds to very expensive talent teams who do not Hold Microsoft and Apple, because it is hard to demonstrate true insights into companies that are well-studied and held by everyone. So they typically focus on smaller, less followed companies, resulting in underweighting the 'Mag 7.'”

The ETF industry is thriving.

According to data from ETFGI, investors injected $1.7 trillion into ETFs this year, resulting in a 30% growth in the total assets of the industry, reaching a record $15 trillion.

Analysts point out that this growth is mainly attributed to the S&P 500 Index rising by about 25% within the year and investors' recognition of US Assets. Invesco's head of ETF and Index investing, Brian Hartigan, stated:

"Investors have clearly regained confidence this year, with market sentiment leaning towards risk."

It is reported that many traditional mutual fund companies, including Capital, T Rowe Price, and Fidelity, are trying to attract the next generation of clients by repackaging active strategies as ETFs.