U.S. equity index fund assets have surpassed the assets of their actively managed counterparts for the first time, according to Morningstar’s latest fund flows report.
As of Aug. 31, the assets of mutual funds and ETFs invested in U.S. equity index funds totaled $4.27 trillion, more than the $4.25 trillion invested in actively managed U.S. equity funds.
Both categories saw outflows in August, but the outflows in actively managed U.S. equity funds, at $18.94 billion, dwarfed the outflows from U.S. equity index funds, which were less than a billion. For the year ended Aug. 31, the outflows from passive U.S. equity funds actually exceeded those from actively managed funds: $231 billion vs. $201.7 billion.
“It is a great milestone that there’s more money in passive equity funds than active equity ones,” says Todd Rosenbluth, head of ETF and mutual fund research at CFRA. He attributes the growing popularity of passive equity funds to lower costs, leading to adoption by investors and advisors, and often stronger performance relative to actively managed funds.
Indeed, over the 10 years ended June 29, less than one-quarter of actively managed U.S. equity funds outperformed their passive counterparts over the 10 years ended June 29 and just under half outperformed over the previous year, according to Morningstar’s most recent active/passive barometer.