Rise Of The “Dumb” Money In One Chart

Dear active management: you’d better hope to God stock and sector correlations stay low and dispersion rises, because from where I’m sitting – and I’ll put this gently – it looks like you’re super f*cked…

etfflows

(Goldman)

Via Goldman

The rise in popularity of index objective funds during the past few years is mirrored by the trend of inflows into passive equity ETFs. Domestic equity ETFs have witnessed inflows of $486 billion since 2012 (+$37 billion YTD) compared with $464 billion of outflows from active equity mutual funds (-$20 billion YTD). Although the market value of domestic ETF assets is still only one third that of domestic mutual funds, ETF assets have risen by 174% vs. 74% for domestic mutual funds in the past five years.

 

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3 thoughts on “Rise Of The “Dumb” Money In One Chart

  1. i am a little tired of everyone dumping on ETFs, and this article, essentially indicating mutual funds are ‘smarter’ than etfs. mutual funds live in their little style boxes—but many people think they actually ‘sell’ when a market is beginning to decline, they dont. if the market goes down 20% and the mutual fund goes down 16% thats a big ‘win’ for the mutual fund manager, but not so much for the investor.

    etfs are a far more effecient way of gaining exposure to an asset class. asset allocation is the key to long term gains, that beat the sp500 on a risk adjusted basis. yes, some retail investors buy these and forget about them, assuming today, that markets only go up. but to assume mutual funds are better is an error. they are more expensive, less liquid and dont do what the avg retail investor thinks he’s getting — portfolio management. what this chart is showing is the death of mutual funds. a lot of this has to do with technology, being able to get very accurate NAVs on etfs every second of the day. the only mutual funds in the future will be commodity based and truly active, go -anywhere type of management.

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