Worldwide indexed assets under management rose 13% during the year ended June 30, with assets growing to $13.37 trillion from $11.83 trillion the previous year, according to Pensions & Investments' annual survey of managers of indexed assets.
"From our perspective, passive is clearly a key element to all of our clients' portfolios. It has been and it continues to be," said Jay V. Kloepfer, executive vice president and director of capital markets research at Callan LLC in San Francisco.
Equities continued to hold the highest share of passively managed assets in 2018. As of June 30, $6.42 trillion was managed in U.S. equity, a 16% increase from the previous year's $5.53 trillion. Assets managed in international equity rose 7.7% to $2.67 trillion and global equities increased 6.2% to $1.23 trillion.
For the one-year period ended June 30, the S&P 500 index returned 14.37%; the MSCI All Country World index, 10.73%; and the MSCI All Country World index ex-U.S., 7.28%.
Mr. Kloepfer said the low cost of passive funds and the inability of some managers to significantly outperform indexes could cause dissatisfaction in some spaces, such as active domestic large cap, but he sees opportunities for active managers in international equities, particularly in emerging markets and international small-cap.
"The amount of research to work effectively in those areas is daunting. Most of those markets feature a large number of stocks and very few have coverage. That's where we think active management has the real potential to shine," he said.
Global/international fixed-income assets under indexed management saw the largest percentage in growth in 2018, rising 18.1% to $1.08 trillion, while domestic fixed income rose 13.5% to $1.76 trillion.
The Bloomberg Barclays Global Aggregate ex-U.S. Bond index returned 1.36% for the year ended June 30 and the Bloomberg Barclays U.S. Aggregate Bond index returned -0.4% for the period.
Mr. Kloepfer said the possibility of future interest rate increases and potential uncertainty in bond markets could provide an asset-gathering opportunity for active fixed-income managers. "That would be one area where I would expect there to be less of an advance as a relative share (of passively managed assets). Most of our investors, and we agree, want somebody active at the helm," he said.