Here’s something I probably shouldn’t say to a readership comprised in no small part of active fund managers: Active management’s dead.

Don’t shoot the messenger. It’s not my fault you’re charging eight times the fees of index funds you know full well you can’t beat consistently.

I should apologize. But I won’t. Because it’s true and also because, although I’m getting better at them with age, apologies still aren’t my cup of tea.

Abrasive humor aside, some of active management’s travails really aren’t the fault of the industry. Passive indexing and what I’ll call quasi-indexing have created a self-fulfilling prophecy and it’s not necessarily healthy.

Indexing’s no different than all good things: Too much of it can be bad, and there’s an argument to be made we’ve crossed that threshold. As Howard Marks put it way back in 2017,

The large positions occupied by the top recent performers — with their swollen market caps — mean that as ETFs attract capital, they have to buy large amounts of these stocks, further fueling their rise. In the current up-cycle, over-weighted, liquid, large-cap stocks have benefitted from forced buying on the part of passive vehicles.

With just a few interruptions, the “up-cycle” Marks described eight years ago’s still going, and you could plausibly assert it’s come at the expense of price discovery.

Everyone can’t be an indexer. If everyone’s an indexer, the market ceases to be a price-setting mechanism.

With all of that in mind, consider that 2025’s on track to be a record year for inflows to stock ETFs and a record year for outflows from active equity funds.

As the figure on the left, above, shows, ETFs are poised to take in $1.5 trillion this year. The flipside of that, shown on the right, is a $600 billion outflow from active funds.

That’s part (and parcel?) of the reason why benchmarks continue to post inexorable gains on increasingly extreme concentration (i.e., increasingly poor breadth).

This is a good time to revisit a classic Wells Fargo note released just months after Marks’s 2017 missive mentioned above. In October of that year, the bank published a piece called, provocatively, “Passive Is The New QE,” writing as follows,

Currently, the shift to Passive is coinciding with ever higher equity prices with many equity indices trading at or close to all-time highs. As QE seemed to exaggerate trends in the fixed income markets, so it appears that Passive equity flows are exaggerating stock movements. Recently we’ve observed consistent net inflows to Passive Equity funds, which have morphed into a type of Black Hole. Money goes into stocks and never comes out.

More precisely: Money goes into passive stock funds, particularly ETFs, and never comes out, and those inflows are funded by a terminal bleed from active management.

Since 2015, $6.1 trillion flowed into equity ETFs. Over the same period, $3.1 trillion fled active funds.

I’ll leave you with one more quote from Marks, ca. 2017,

Remember, the wisdom of passive investing stems from the belief that the efforts of active investors cause assets to be fairly priced — that’s why there are no bargains to find. But what happens when the majority of equity investment comes to be managed passively?