I’m never sure how much editorial attention to afford the ongoing active-to-passive shift in the equities space (and it’s not confined to equities now that we’re on the subject).
This has been going on for so long that it scarcely bears mentioning in any discussion with “professionals.” And yet, it still comes up in those discussions, which makes me think I should keep mentioning it.
As noted here on any number of occasions this month, equities as an asset class are on track for an enormous inflow in 2024. Specifically, equity-focused ETFs and mutual funds have seen $624 billion of net inflows this year through last week, putting stock funds on track for a nearly $700 billion annual haul.
As the figure above, from Goldman, shows, that’d make 2024 the second-best year ever for equity flows, behind only 2021’s hair-on-fire frenzy.
I mentioned this last week, but the breakdown on that $624 billion figure is $988 billion to ETFs and $363 billion from mutual funds. Investors are, Goldman remarked, “passively allocated.”
On that point, the bank’s Scott Rubner highlighted the charts below from one of his colleagues (click to enlarge as always).
The chart on the left shows the evolution of ETF and mutual AUM globally looking back two decades. On the right is the same chart for US equity-focused products.
Suffice to say this shift is epochal, structural, ongoing and, in almost every conceivable eventuality, permanent.
The weird, existential question remains unanswered: What happens if and when substantially every dollar of invested capital can be categorized as “passive”?
I for one appreciate the attention you have given to this subject. Is it possible that what we are seeing is something of a generational shift? Meaning, are older retirees perhaps passively drawing down on long held mutual funds in their IRAs while somewhat younger investors are actively piling into the ETF space?