COTW: Convergence of Active & Passive U.S. Equity Funds

May 22, 2019

Morningstar recently published their April Fund Flows report. Per the report: "at the end of April passive U.S. equity fund assets essentially reached parity with active U.S. equity funds at $4.3 trillion each". Contrast that with the balance back in 1998 when there were 6.5 times as many assets in actively managed U.S. stock funds as in index funds. The primary reason for the shift in investor preference has been the inability of most higher-priced active managers to beat their passive peers (or self-assigned benchmarks). These struggles were punctuated during the Financial Crisis in 2008 when most active managers failed to protect investors from severe losses, at a time when investors needed that protection most. In contrast to the growth in market share of index funds in U.S. stocks, many other asset classes with less trading volumes and liquidity, lower analyst coverage and access to information continue to be dominated by active managers. We view low-cost, tax-efficient index-funds as an effective tool for the core of most client portfolios, but still believe investors should still consider niche active managers in a host of asset classes for both return enhancement and risk management. In fact, the abnormally high returns of passively-managed funds in core stock and bond markets, is leading us to marginally increase exposure to many of these alternative assets.



SpringTide Partners, LLC is a Registered Investment Advisor with the state of Illinois and other states jurisdictions where required. Registration with the SEC or any state securities authority does not imply a certain level of skill or training. All information contained herein is for informational purposes only and does not constitute a solicitation or offer to sell securities or investment advisory services. All investing carries risk including risk of principal loss. All statements made on this website are opinions of SpringTide Partners, LLC and are subject to change. SpringTide Partners, LLC assumes no responsibility for the accuracy of the data included. Statements made on website shall not constitute investment advice.

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