Growth of Passive Investing Worldwide in 2012

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Growth of Passive Investing Worldwide in 2012

Postby Simplegift » Fri Jul 26, 2013 7:48 pm

For those who are interested in the passive investing story worldwide, Morningstar has published its first ever global report on money flows into mutual funds and ETFs for 2012. It includes some impressive data about active versus passive investing by geographic region and for the world as a whole (table below):

    • 41% of all net fund flows worldwide went into passive investments in 2012 (green oval).
    • 18% of total mutual fund and ETF assets worldwide are now passively invested (blue oval).
    • Passive investing grew at three times the rate of active investing, 9.8% to 3.2% (red oval).
While we're all most familiar with the growth of passive investing in the U.S., it's encouraging to see that Asia (ex-China and India), Canada and Cross-Border are also growing at double-digit rates — albeit from a much lower base than the U.S. In Europe, the growth rate is slower, which Morningstar attributes to the dominant private bank distribution model there. Interesting trends that will be worth following in the coming years!

Active vs. Passive by Geographic Region — 2012
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Re: Growth of Passive Investing Worldwide in 2012

Postby CaliJim » Fri Jul 26, 2013 9:10 pm

Very interesting. Thanks for posting. Look forward to seeing what next year's report looks like.
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Re: Growth of Passive Investing Worldwide in 2012

Postby patrick » Fri Jul 26, 2013 9:40 pm

Am I correct to assume that the indexing share is actually lower because the results exclude people who buy individual stocks instead of active funds?
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Re: Growth of Passive Investing Worldwide in 2012

Postby Rick Ferri » Fri Jul 26, 2013 10:04 pm

Individual stock ownership has also been declining.

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Re: Growth of Passive Investing Worldwide in 2012

Postby Simplegift » Fri Jul 26, 2013 10:16 pm

patrick wrote:Am I correct to assume that the indexing share is actually lower because the results exclude people who buy individual stocks instead of active funds?

Not necessarily. Morningstar's global data only includes mutual funds and ETFs that are used by individual, retail investors (since that's their business). Some reports put total global "assets under management" at about $70 trillion in 2013. Since the global assets reported above by Morningstar are about $20 trillion, there's about $50 trillion in managed assets worldwide that are invested entirely separately by pension funds, institutions, insurance companies, global wealth funds, etc.

I'm sure a large and growing percentage of this $50 trillion is also passively-managed — but I'm not aware of any all-world, all-asset class data that would show the breakdown.
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Re: Growth of Passive Investing Worldwide in 2012

Postby oragne lovre » Sat Jul 27, 2013 12:14 am

I wonder if Morningstar will publish this global report annually from now on. It's interesting to see what the trend and geographic distribution look like.
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Re: Growth of Passive Investing Worldwide in 2012

Postby Simplegift » Sat Jul 27, 2013 10:16 am

In a PM, someone asked about the historical growth rate of passive investing (before 2012) — and I wanted to add that information to this thread as well.

The best data available is again from Morningstar, but just for the United States. The chart below shows the U.S. growth trend for passively-managed assets since 2003 (excluding money market and funds-of-funds) — an extremely consistent 10% annual growth rate over the past decade.

Image
Source: Morningstar

Morningstar further indicates that within the broad category of U.S. stocks in its database, 34% are now passively managed. Passive U.S. stock assets have seen net inflows since 2006, while active funds have seen net outflows.
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Re: Growth of Passive Investing Worldwide in 2012

Postby learning_head » Sat Jul 27, 2013 10:54 am

I think this is bad news. If before we had 90% of the market working hard to figure out prices for 10% indexed dollars, now only 74% are trying to figure out prices and move them around for the larger 26% indexed dollars. Not a good trend at all IMO for bogleheads.
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Re: Growth of Passive Investing Worldwide in 2012

Postby Rick Ferri » Sat Jul 27, 2013 1:52 pm

It doesn't take much activity to figure out prices. On any given day, only a small fraction of any market trades. This turover is more than adequate to price securities.

You don't need 20% turnover per day in the housing market to figure out how much your house is worth. 5% turnover in your geographic location per YEAR is good enough. Stocks are the same. Indexing can be 95% of the market and individual stock prices will still flucuate independently.

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