The business of picking stocks and bonds for clients is getting smaller by the day.
Seven top asset managers this week reported a total of $50 billion in third-quarter net redemptions, most of it from active funds, company filings show. The biggest losers: Franklin Resources Inc. with $22.1 billion, AllianceBernstein with $15.3 billion and Waddell & Reed Financial Inc. at $4.9 billion.
In the second quarter, that group of seven saw $34 billion in outflows. The tally is further evidence that investors, frustrated with high fees and mediocre performance of actively managed funds, are increasingly casting them off for low-cost passive investments.
In the 12 months ended Sept. 30, active funds had redemptions of $295 billion while passive took in $454 billion, according to data from Morningstar Inc.
“The shift from active to passive is an accelerating secular trend,” said Benjamin Phillips, a principal with the consulting firm Casey Quirk by Deloitte. “It is not going away.”
Clear evidence of that: The publicly traded firm that lured the most cash in the third quarter, BlackRock Inc., with $55 billion, drew more than 90 percent of it in funds that track indexes. Vanguard Group, known for its low-cost index funds and ETFs, also attracted $78 billion in deposits in that period.
The asset management unit of Ameriprise Financial Inc. reported redemptions of $4.3 billion from active funds in the third quarter compared to $7.4 billion a year ago. T. Rowe Price had $200 million. On Friday, Legg Mason Inc. reported fiscal second quarter net outflows of $300 million including alternatives outflows of $1.6 billion and equity outflows of $1.5 billion, which were partially offset by fixed income inflows of $2.8 billion.
At Waddell & Reed, the third quarter marked the ninth consecutive quarter that the firm experienced outflows. On an Oct. 25 conference call with investors, CEO Philip Sanders said there was lower demand for the company’s actively managed products. He also pointed to “significant regulatory change” and fee pressure as driving the shift.
“Our industry is undergoing a period of transformational change,” Sanders said.
Janus Capital Group Inc. reported $2.4 billion in third-quarter net redemptions, the most in a year. The Denver-based firm saw outflows in its growth, global equity and fixed-income funds and those from the Intech unit, which uses mathematical strategies.
Earlier this month, Janus announced plans to merge with Britain’s Henderson Group Plc in a bid to get the scale it needs to stay competitive. Henderson also reported this week that it saw net outflows in the third quarter.