Worldwide internally managed index assets rose to $8.97 trillion in the year ended June 30, a $1.74 trillion increase, according to Pensions & Investments' annual survey of managers of indexed assets.
This 24.1% surge surpassed the previous year, when assets increased 18.4%.
“On aggregate, the trend is inexorable,” said Jamie Farmer, New York-based managing director, index investment strategy at S&P Dow Jones Indices LLC. “Institutional investors are being drawn toward the passive space on the basis of performance and on the basis of fees.”
BlackRock Inc., New York, led the pack for the fifth consecutive year with $2.825 trillion of indexed assets, a 23% gain from a year earlier. A 33% increase moved Malvern, Pa.-based Vanguard Group Inc. up to second place on P&I's list with $2.079 trillion, passing State Street Global Advisors, Boston, which dropped to third place despite seeing a 17% increase that raised their total to $1.972 trillion.
A 22% rise to $471.5 billion kept Northern Trust Asset Management, Chicago, in fourth place for the ninth consecutive year; followed by New York-based Bank of New York Mellon, which spent an eighth year in fifth place with a 24% increase to $355.6 billion.
“I would say the significant piece of growth is down to market movements,” said Jane Welsh, London-based senior investment consultant and head of the indexation research team at Towers Watson & Co. “Most of our clients have already got passive management as a big piece of what they do already. If you're seeing AUM growth, market movements will be a significant contributor.”
For the year ended June 30, the Russell 3000 index returned 25.2%; the Morgan Stanley Capital International World index, 24.8%; and the Morgan Stanley Capital International EAFE index returned 24.4%.
Even in a year of strong returns, index management remains an attractive option when many active managers don't provide alpha relative to fees, said Johnny Wu, New York-based managing director and head of equities and fund structured markets sales, Americas for Barclays. “You're going to see active management challenged to show value. A lot of managers have underperformed,” Mr. Wu said.
Most active managers underperformed their one-year domestic equity benchmarks as of June 30, according to the midyear S&P Indices Versus Active Funds U.S. Scorecard. Measured against the S&P 500, 59.78% of active large-cap managers underperformed the broad index, while 57.84% of active midcap managers failed to beat the S&P MidCap 400 and 72.79% of active small-cap managers underperformed the S&P SmallCap 600. A rolling five-year analysis shows that 73.56% of active managers across all domestic equity market capitalizations underperformed the composite benchmark.
Data from S&P Dow Jones Indices show 74.86% of active international equity managers underperformed relative to the S&P 700 benchmark for international funds as of June 30, while 74.23% underperformed over the five-year period. Measured against the S&P Global 1200, 70% of active global equity managers underperformed for the year and 70.26% underperformed over five years.