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Commentary

Death of Active?

The data doesn't necessarily support the notion that investors have gotten religion about passive investing.

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One of the biggest stories of recent years is the rise of passive investing. In June 2009, active funds accounted for about 79% of fund assets (active U.S. stock funds had a 31.7% market share). Fast forward five years, and that figure had shrunk to 71.5% (28.7% for U.S. stock funds), the incursion by passive funds accounting for the 7.5% erosion. That's a big number.

On balance, the shift looks like a big positive. Studies have shown that cost is one of the few variables that can predict future relative performance, so perhaps the move to passive means investors have become more frugal in trying to boost their odds of success. Or maybe they've changed their priorities, focusing less on chasing the hot actively managed fund of the moment and more on using ETFs and index funds to lock-in a suitable asset allocation (which, in my opinion, is what really matters anyway). Whatever the reasons, it looks like a step in the right direction.

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Jeffrey Ptak does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.