Active assets are near record highs, but outflows have been persistent. Investors are less willing to pay higher fees for the same, and sometimes better, results they can get from cheaper passive investments. Still, investors allocating to active management are investing with a smaller set of larger managers whose scale allows for competitive fees.
Bigger pond, bigger fish: Active AUM is near all-time highs with more than 1,000 individual managers, but invested assets are becoming more concentrated among the largest. The dispersion of assets under management has widened among active equity and bond managers, highlighting that assets are gravitating to a smaller set of managers.
Why bother? Outperformance has become more elusive with declining alphas. The dispersion of active returns above the benchmark has fallen as well, leaving investors fewer options in the search for outperformance.
Bargain buys: As managers become less able to set themselves apart on performance, the money that is going into active funds is being invested only in the cheapest funds.
Note: Data represent active, institutional mutual fund activity. *Among managers with at least $1 billion in assets. **Annual three-year alpha vs. prospectus benchmark. Source: Morningstar Inc.
Compiled and designed by Charles McGrath and Gregg A. Runburg