From Morningstar:

The ETF boom has caused a major shift in the European asset management industry over the past decade. As of December 31, 2023, 26.7% of total assets under management in Europe were from passive strategies, up from 12.3% a decade ago. But in the US, passive assets have surpassed actively managed funds for the first time in history.

The trend toward passive management in Europe is accelerating faster than expected, with continuous growth in the preference for passive over active strategies. The organic growth rate of passive funds, which are mainly ETFs, has exceeded that of active funds every year from 2014 to 2023. In the last two years, active management has recorded net outflows.

The ETF boom started in Europe after the financial crisis of 2008 and has been marked by falling fees, ease of use, and transparency. Initially used for commodities and global equities, ETFs have now become a credible option for allocation and bond investments, especially for the core component.

At the asset class level, the weight of passive management has grown across commodities, equities, and bonds. Passive assets have seen stronger organic growth compared to active funds in equities and bonds. Notably, numerous Morningstar categories are now dominated by passive strategies, including global emerging market equity funds, sector equity energy funds, and small-cap US equity funds.

Active management is fighting back, with a reminder from Morningstar that the majority of active managers struggle to beat their benchmark. Investors should not see the increasing demand for passive management as a recommendation to always choose passive or to overlook the value quality active managers can bring. Morningstar asserts that a world without active managers would be boring and potentially dangerous.



Read more: Are ETFs Taking Over Europe Too?