Why Passive Funds are Growing in Popularity

Investors have been slow to take up exchange traded funds in Europe, but with regulation putting pressure on fees passive funds look set to soar

Jose Garcia-Zarate 20 February, 2017 | 10:26AM

Interest for passive investment solutions is growing at an accelerated pace. This is particularly so in the US, where passive has become akin to a default investment option. The trend is also positive in Europe. In fact, net inflows into European passive funds in 2016 – both index funds and ETFs – totalled $83 billion and outpaced the $48 billion netted by their active peers. ETFs have been the main beneficiaries, gathering $51 billion of new money to boost assets under management to $583 billion, placing them at par with the longer-established market of traditional index funds.

In the US, investors have embraced ETFs, but in Europe they have only scratched the surface

The outlook for the ETF industry is positive. Spurred by an increasing acknowledgement of the long-term benefits of low-cost solutions, the take-up of ETFs – passives in general – is expected to continue growing at a healthy clip. However, key differences between the US and European ETF market remain, particularly with regards to their adoption by retail investors.

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About Author

Jose Garcia-Zarate

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

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