It’s the final week of the summer fund raising season for Public Television, and as WEALTHTRACK may not be airing on your local public television station, we are revisiting one of our recent programs about the popular swing to passive investing.
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The evidence continues to build. The overwhelming majority of actively managed U.S. equity mutual funds are lagging their benchmark indexes. There is now a 15 year history to prove it. The latest SPIVA, the bi-annual S&P Indices Versus Active Scorecard, which has been published since 2002, shows that at least 92% of large-cap, mid-cap and small-cap fund managers have trailed their benchmarks.
As a recent The Wall Street Journal headline put it, it’s a “Wall Street Rout”.
Meanwhile, the newest vehicle for indexing, exchange traded funds, universally known as ETFs, are also outperforming actively managed mutual funds and are attracting huge amounts of money.
The numbers are pretty staggering. Record amounts of cash poured into exchange traded funds last year - and the flood is continuing. Net inflows into U.S. ETFs alone reached more than $284 billion dollars in 2016. Almost as dramatic was the leakage from actively managed mutual funds. Net outflows reached $186 billion.
Not surprisingly, with more than 90% of ETFs representing passive index strategies, 95% by assets, passive investing was the overwhelming gainer and active strategies lost big time. More than half a trillion dollars flowed into passive mutual funds and ETFs, while a net $340 billion fled actively managed ones.
ETF assets just surpassed hedge fund investments by a trillion dollars for the first time ever as well.
Exchange traded funds are also making their presence known on stock exchanges. Depending upon the day, ETFs account for between 20% and 40% of total trading volume in the U.S. market.
According to this week’s guest, Matt Hougan, ETFs have become the investment vehicle of choice for many investors and are in the process of eclipsing mutual funds in popularity and assets.
Hougan is a noted thought leader in the ETF space. He is Chief Executive Officer of Inside ETFs, the world’s largest ETF education and events company. Prior to that, he was the CEO of ETF.com, a leading authority on ETFs. Launched in 2001, Hougan was one of the first employees of the company, which was an industry pioneer.
Hougan believes the gig is up for actively managed mutual funds and that ETF’s will eclipse them in assets in a few years. We will discuss why he is so confident about that outcome, the current state of the ETF industry, emerging developments in it and why he believes they have huge investment advantages over mutual funds.
As always, the show is available on WealthTrack.com. Also, new on our website this week: why haven’t the excesses typical of bull markets materialized in this one? Eight years in, this remains one of the least loved bull markets in history. Financial thought leader and noted investment strategist, Strategas Research Partners’ Jason Trennert says thank the Private Equity industry for keeping some froth out of the publicly traded markets.
Next week, we’ll be back to new programming. We will hear from Great Investor Hersh Cohen, Co-Chief Investment Officer at ClearBridge Investments who will share his 50 years of market and investing perspective with us including his successful focus on dividend growing stocks.
Thank you for watching. Have a great summer weekend, safely watch the solar eclipse on Monday if you can, and make the week ahead a profitable and productive one.
Best Regards,
Consuelo
