I was asked to comment for an article in today’s Ignites (a Financial Times Service) on whether ETFs (passively managed investments) would continue to gain market share at the expense of actively managed mutual funds, as has been the case over the past few years. The article reviewed the results of a poll on whether or not investors would be putting more money into equities this year, and if so, in what types of investment vehicles.
Roughly 26% or respondents thought that investors would move back into equities this year, the most popular answer. This was followed by 23% which said that actively managed funds will lose ground to passively managed funds. These were the top two answers in a similar poll last year.
I agree more with the second answer than the first. To quote from the article: ” Andy Klausner, founder and principal of AK Advisory Partners, says that the trend of actively managed funds’ losing ground to passively managed funds and ETFs will likely accelerate somewhat this year. “Many individual investors are still on the sidelines, and there are still a lot of unknowns facing the economy this year, including the impending spending and debt limit negotiations in February or March…. I am not optimistic that overall inflows will be great this year, but whatever flows that there are should favor ETFs,” he explains.”
I continue to believe that this will be a very unsettled year in the markets, largely the result of geo-political issues here and abroad. Since there has been a lot of money on the sidelines, it is inevitable that some will come back into the market – but not nearly enough to compensate for the large outflows of the past few years.
What money does come back in, however, will favor ETFs over actively managed mutual funds for a number of reasons – including their lower fees, the ability they offer to easily diversify among sectors/countries and the fact that many brokerage/banks investment platforms have begun to include model ETFs programs to mirror their mutual fund offerings. This latter move will make ETFs more readily available to a larger number of investors.
What do you think?
