Lower cost funds have ‘transformed economics’ of asset management

collective investmentPassive mutual funds grew faster than actively managed funds in every geographic region in 2012 except Australia and New Zealand.

Funds which track an index, including exchange-traded funds (ETFs), captured 41% of estimated net flow, or US$355 billion last year.

The ‘2012: Annual Global Flows’ report by data provider Morningstar shows that the United States is leading the way in its appetite for low-cost, passive strategies.

However, 78% of worldwide mutual fund and ETF assets under management (AUM) still resides in actively managed funds.

The drift to passive strategies and fixed income have “transformed the economics of the industry”, the report says.

“While AUM increased by 39% between the end of 2007 and the end of 2012, management fee revenue increased only by about 24%.”

Morningstar’s figures show that the largest 50 non-money market funds worldwide gathered about $9.7 billion in management fees in 2007 and the largest 50 in 2012 took in only $8.3 billion, all while managing $1.2 trillion, or 32%, more AUM than the largest 50 funds in 2007.

This is the first time Morningstar has published global fund flow data and it covers trends in five markets—Australia, Canada, Europe, Japan, and the United States—and a broader worldwide overview.

Funds in China, India and Israel are not covered.

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