Friday Facts: Will The Growth Of Passive Equity Products Start To Hurt Active Managers?

Image Source: PixabayAt the headline level, the European fund industry suffered overall estimated net outflows of €42.9 bn from equity products between January 1, 2022, and June 30, 2024. Even as this number does not sound too bad, taking the market turmoil over the course of the year 2022 into consideration, a view on the flows by product type unveils a fund flow trend which may hurt the future balance sheets of at least some of the promoters of active managed equity funds.A detailed view of the fund flow trends for equity products between January 1, 2022, and June 30, 2024, shows that active managed equity funds faced overall outflows of €292.6 bn within the observation period. These outflows nearly offset the inflows in active managed equity funds for the years 2020 and 2021 (+€300.8 bn). This means actively managed equity funds did not enjoy notable inflows over four-and-a-half years. Given the fact that the fund industry has a high operational margin, which needs inflows to be maintained on a given level, this flow pattern may impact the future growth rates of the affected asset managers. That said, not all asset managers are affected by this flow pattern, as some fund promoters were able to gather significant inflows into their actively managed equity funds.European Fund Industry: Estimated Net Flows in Equity Products (in bn EUR)Source: LSEG LipperConversely, passive equity products (ETFs and index tracking mutual funds) enjoyed strong inflows over the observation period (January 1, 2022, to June 30, 2024). While index tracking equity funds witnessed estimated net inflows of €102.1 bn, equity ETFs enjoyed a stunning €390.9 bn of estimated net inflows within the observation period. Since the years 2020 and 2021 were both years with net inflows for passive products, the flows over the observation period were boosting the absolute and relative growth of passive equity products in the European fund industry.With regard to the question in the headline, it can be concluded that the balance sheets of some asset managers might be hurt rather sooner than later by the growth of low margin passive products. With regard to this, it is foreseeable that the general consolidation in the European fund industry will be accelerating if this fund flows trend continues.More By This Author:Dollar General Is Being Nickel-And-Dimed S&P 500 Earnings Dashboard 24Q2 – Friday, Aug. 30Russell 2000 Earnings Dashboard 24Q2 – Thursday, Aug. 29