As assets under management in passive equity products surpassed the assets under management in actively managed equity products in Q4 2023, some market observers raised concerns that this could impact the efficiencies of the equity markets around the world. The main reason for this concern is that passive products buy a security because it is a constituent of an index and not based on an analysis of the fundamentals or the evaluation of the company’s business model. In other words, passive products may buy stocks—thereby holding up their price—that may have a very bad balance sheet or decreasing business which

With the rise of ETFs, index mutual funds had been out favour with European investors until the year 2015. But even as index funds got some positive momentum since 2016, ETFs still experienced higher inflows. While I was analysing the year-to-date flows at the end of August, I was surprised that index funds (+€52.5 bn) enjoyed higher estimated net inflows than ETFs (+€42.8 bn), as this means that index funds have been the passive investment vehicle of choice for European investors so far for 2019. If this trend continues until the end of the year, they will beat ETFs in

Given that we have witnessed many headlines concerning passive investing and the popularity of ETFs, confirmed by the inflows and increasing assets under management in the European ETF industry, one could conclude that European investors like index products. It seems European investors follow the academic research and invest in products that appear from the scientific evidence to be superior at helping them achieve their investment goals. But a look at the underlying trends shows that Europeans don’t like all kinds of index products. Mutual funds that track an index seem to no longer be in the favor of European investors.