ETFs Win as Fund Managers Fail to Outperform

Passive funds continue to attract assets as investors increasingly realise that most active-fund managers don't offer value for money

Jose Garcia Zarate 15 January, 2015 | 12:18PM
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Let’s make no bones about it; 2014 was a fantastic year for the ETF industry, with assets under management in European-domiciled ETFs rising 26% year-on-year to EUR 380 billion including capital appreciation. The good run for ETFs came during a year of bullish, albeit volatile, dynamics for equity markets and ongoing monetary policy support for fixed income assets.

Conventional wisdom has it that under these market conditions, active managers should have found it easier to exploit opportunities, add value and beat their benchmarks. The reality has been otherwise, with some industry calculations revealing that 75% of European active equity fund managers failed to meet this basic objective in 2014. The message that consistent performance by active fund managers is hard to come by is slowly but surely getting through to the European investor community.

Rotation, What Rotation?

In terms of favoured asset classes, Morningstar data show that 60% of net inflows in 2014 were directed at equity ETFs and the remaining 40% to fixed income ETFs. Net flows barely moved the needle for other asset classes, such as commodities.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
iShares Core S&P 500 ETF USD Acc GBP35,436.20 GBP1.51Rating
Vanguard S&P 500 UCITS ETF87.79 USD1.51Rating

About Author

Jose Garcia Zarate

Jose Garcia Zarate  is Associate Director of Passive Strategies Research for Morningstar Europe