Shift to Passive Mutual Funds Continued in 2015: PwC

A report on developments in the mutual fund industry in 2015 from PwC finds that assets nearly doubled since the financial crisis, and strong demand is enriching the coffers of exchange-traded funds.

According to the report, investors have continued to shift assets to passively managed mutual fund products, increasing from 9% in 2005 to 23% as of September 2015. Over the past decade, passively managed funds have attracted $2.2 trillion in net new flows, compared with $1.5 trillion for active funds.

Last year alone through September, passive funds garnered $301 billion, while active registered funds recorded net outflows of $128 billion.

At the fund level, 52% of total U.S. mutual fund assets were invested in equities, 22% in bond funds and 17% in money market funds.

ETF assets have grown rapidly, standing at $2.1 trillion by late 2015, up from $1 trillion five years ago.

PwC said that in a recent survey of asset managers, 75% had predicted that global ETF assets would increase to $5 trillion by 2020, thanks to greater penetration of global markets, growing acceptance by more types of investors and the emergence of a wider variety of investment strategies.

Alternative mutual funds, which combine mutual funds’ trading flexibility with hedge funds’ investment style, have increasingly appealed to investors, enabling them to gain exposure to such investments as derivatives and distressed bonds.

Between 2007and the end of 2014, alternative funds attracted $124 billion in net new cash and reinvested dividends, and at the end of that period had total assets of $334 billion across 569 funds.

On the regulatory front last year, the report said the Securities and Exchange Commission sought to address certain risks in the asset management industry, starting with proposals related to derivatives, data reporting by investment companies and advisors and liquidity risk disclosure.