With many institutional investors preferring cheaper passive investments, active managers are competing for a smaller pool of assets. Larger managers use their scale to offer lower fees that alone can boost returns. With fees at the forefront of investors’ concerns, the advantage that lower-cost funds have over higher-cost funds has been a boon for the largest players.
Growth lags: Flows to investment managers have driven assets to record highs, but growth among active strategies has been relatively small in comparison. Total asset growth has outpaced active-fund growth by 4.4% on average over the five years ended 2017.
The big get bigger: The largest managers based on 10-year average assets took 60% of the asset flows from Q1 2015 to Q1 2018, compared to 22% for the three years ended Q1 2015.
Bargain shopping: Low-cost funds have reaped the bulk of net asset flows in recent years. The average flow to funds below the 20th percentile of fees has heavily outweighed that to higher-cost peers.
Lower fees: The top quintile of managers by asset size offered lower-cost active funds across three asset classes. In aggregate, spreads have increased 12 basis points since 2012, a trend likely to continue as low fees bring in assets.
*Data from P&I Research Center, includes managers that reported active asset detail. Includes U.S and international equity and active bond funds. Sources: P&I, Morningstar Inc.