Commentary

The Death of Active Management Has Been Greatly Exaggerated

Ben Johnson, CFA

It is no secret that actively managed funds are struggling (EXHIBIT 1). Over the three-year period ending April 30, U.S.-domiciled actively managed mutual funds and exchange-traded funds witnessed collective outflows of nearly $514 billion. Passively managed mutual funds and ETFs collected nearly $1.57 trillion in net new money during that same span. What began as more discerning culling of positions in underperforming U.S. stock funds has become more widespread. For example, during the 12 months ending Jan. 31, investors pulled $99 billion from funds that beat their Morningstar Category indexes over that same period.1

Are we approaching the End of Days for active management? I don't believe so. In my opinion, active management will never die. There will always be investors who hope for something better than getting the market's return net of a small fee--it's human nature. But active management must continue to evolve. Here, I'll take a closer look at two ways in which active management has changed in recent years as evidenced by: