September 27, 2019

Passively Managed U.S. Diversified Equity Fund Assets Under Management Surpass Those of Actively Managed Funds

by Tom Roseen.

Assets under management in passively managed U.S. Diversified Equity (USDE) Funds have surpassed those of actively managed funds as of August 31, 2019. The USDE funds universe excludes sector equity funds, world equity funds, and mixed-assets funds. At the end of August, passively managed USDE funds’ assets under management summed to $4.269 trillion, while their actively managed counterparts’ AUM came in slightly less than $4.172 trillion.

Two classifications within the USDE macro-group account for slightly more than half of the passively managed AUM: passively managed Multi-Cap Core Funds have grown to $1.1 trillion under management and S&P 500 Index Funds dominate with more than $1.5 trillion under management.

Five funds within the S&P 500 Index Funds classification account for more than $1.0 trillion of the AUM: Vanguard 500 Index Fund, Admiral Shares (+$290.7 billion), SPDR S&P 500 ETF Trust (+$262.2 billion), Fidelity 500 Index Fund (+$202.6 billion), iShares Core S&P 500 ETF (+$181.9 billion), and Vanguard 500 Index ETF (+$119.0 billion).

For 2019, estimated net flows into passively managed USDE Funds (+$104.9 billion) have swamped those of actively managed USDE Funds (-$125.6 billion) through August 31. However, actively managed Small-Cap Value Funds—taking in $1.5 billion year to date—have surpassed passively managed Small-Cap Value Funds’ draw (+$246 million). Nevertheless, the main attractor of investors’ assets were Multi-Cap Core Funds, attracting a net $64.2 billion on the passively managed funds side, with Fidelity Series Total Market Index Fund (+$17.3 billion) taking in the largest draw of the group year to date, followed by Vanguard Total Stock Market Index Fund, Admiral Shares ($12.6 billion), iShares Edge MSCI Min Vol USA ETF (+$9.6 billion), and Vanguard Total Stock Market Index Fund, Inst Plus Shares (+$9.4 billion).

Despite market gurus such as Vanguard’s late founder Jack Bogle extolling the benefits of low cost, passively managed funds, half of the actively managed USDE fund classifications were able to outperform their passively managed counterparts year to date in 2019. The average actively managed Small-Cap Growth Fund (+20.6%) outperformed its passively managed counterpart (+14.6%) by six percentage points. It appears that in a sideways market some actively managed funds can focus on market sectors that are in favor and avoid those that have fallen out of rotation, while their pure index counterparts generally must keep their asset allocation in line with the underlying index, even if a certain sector has fallen out of favor.

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