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DC pensions helps propel passive fund market share, says Moody’s

Passive investmentsPassive investments, including exchange-traded funds (ETFs), could nearly double their market share of assets in the European funds industry by 2025, driven by a mix of regulation and the growth in pensions saving, analysts have predicted.

Moody’s Investors Service said passive funds will account for a quarter of the industry’s total assets under management (AUM) by 2025, powered mainly by ETFs.

The rise to 25% of AUM from 14% currently will be driven in part by stronger retail demand as more people invest through defined contribution schemes, Moody’s said.

MiFID II, the regulation that has banned commissions paid to advisers and made fees for active funds more transparent, will be another driver as European banks – who dominate fund distribution in Europe – sell a broader range of products rather than their own more costly funds, the firm said.

Moody’s projections show the passive sector could grow to between 22% and 27% of total EUM in Europe, with the ETF share of total fund AUM rising to between 11% or 14% (“base” and “fast” case scenarios).

The prediction is published in Moody’s report: ‘Asset management – Europe: ETF growth will propel European passive funds towards 25% market share by 2025’.

“ETFs will become a core part of institutional investor portfolios in the next five to 10 years due to their flexibility, liquidity and competitive cost,” said Marina Cremonese, Moody’s senior analyst.

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