This report describes the competitive landscape for passively and actively managed funds since 2006 in Canada and the United States.
Data Update: Year-end 2018
Published: Spring 2019
In 2018, Canadian passive funds increased their market share from 10.0% to 10.5% on the back of a positive flow of $9 billion. Meanwhile, Canadian active funds attracted $6 billion. We estimate that Canadian passive funds post a weighted average Management Expense Ratio of 0.30%, compared to a substantial 1.66% for active funds. In the U.S., passive funds increased their market share from 35% to 37%. U.S. passive funds attracted $453 billion. Meanwhile, active funds experienced an outflow of $304 billion.
Since 2007, Canadian passive funds have doubled their market share, from 4.8% to 10.5%. During that period, passive funds attracted a cumulative $70 billion in net new money compared to $83 billion for active funds. Since 2006, U.S. passive funds have more than doubled their market share, from 16% to 37%, and attracted a net money flow of $3.8 trillion, compared to a modest $583 billion for active funds.
Overall, passive funds are slowly gaining ground in Canada, while grabbing market share at a fast pace in the U.S. If passive funds keep increasing market share at the current rate, they could represent 50% of the U.S. fund industry by 2025. We also highlight the substantial savings realized by the Canadian investors who choose passive funds. Considering the 1.36% fee difference between active and passive fund fees, we estimate this net saving to $1.6 Billion dollar for 2018. In our opinion, an individual active manager needs exceptional skill to overcome such a high hurdle in favor of passive funds and outperform a basic, total market fund.
