The
European
asset
management
industry
has
changed
dramatically
over
the
past
decade
and
the
ETF
boom
has
been
a
key
driver.
So
are
ETFs
really
taking
over
the
European
asset
management
industry?
Morningstar
data
tells
us
that
as
of
December
31
2023,
only
26.7%
of
total
assets
under
management
in
Europe
were
attributable
to
passive
strategies
that
replicate
a
benchmark
(the
universe
considered
includes
open-ended
funds
and
ETFs,
while
excluding
money
market
funds
and
funds
of
funds).
This
has
doubled
from
10
years
ago,
when
the
passive
market
share
was
12.3%
of
the
total.
And
where
the
US
leads,
Europe
will
surely
follow:
in
the
United
States
passive
assets
have
for
the
first
time
in
history
surpassed
those
actively
managed
in
the
fund
industry
as
a
whole
(50.02%
vs.
49.98%,
respectively,
at
the
end
of
January
2024).
While
Europe
seems
far
from
the
levels
just
reached
in
the
US,
this
epochal
change
may
be
happening
faster
than
one
might
think.
The
analysis
of
asset
flows
and,
above
all,
of
the
organic
growth
of
passive
versus
active
strategies
confirms
the
absolute
preference
of
investors
for
the
former
(organic
growth
measures
the
percentage
incidence
of
net
flows
in
a
given
period
with
respect
to
initial
assets).
The
organic
growth
rate
of
passive
funds
–
of
which
the
vast
majority
are
ETFs
–
was
higher
than
that
of
active
funds
every
single
year
from
2014
to
2023.
In
the
last
two
years
in
particular,
active
management
has
suffered
greatly,
recording
net
outflows.
ETF
Boom:
Price
War
and
Flexibility
The
exchange
traded
fund
(ETF)
boom
in
Europe
began
with
the
financial
crisis
of
2008.
I
remember
it
well:
I
joined
Morningstar’s
editorial
team
in
2009
and
one
of
my
first
assignments
was
to
cover
these
‘new’
instruments
(they
were
not
so
new,
the
first
ETFs
appeared
in
Europe
in
2000)
that
were
gaining
favour
with
institutional
and
retail
investors,
thanks
to
their
transparency,
ease
of
use
and,
above
all,
low
costs.
Since
then,
ETF
fees
have
continued
to
fall
(remember
the
so-called
price
war
of
2018-2019?),
to
as
low
as
a
few
basis
points
in
some
cases.
In
the
beginning,
ETFs
were
mainly
used
to
gain
exposure
to
market
pockets
hitherto
precluded
to
individual
investors
(typically
commodities,
such
as
oil
and
gold)
and
major
global
equity
indices.
Over
time,
however,
exchange
traded
funds
have
also
become
an
increasingly
credible
option
for
those
looking
at
allocation
and
especially
bond
investments,
particularly
for
the
core
component.
Bond
Funds
Go
Passive,
Join
ETF
Rush
Taking
a
closer
look
at
the
asset
class
level,
the
weight
of
passive
management
has
grown
everywhere.
If
in
commodities,
dominated
by
instruments
such
as
ETCs,
the
83%
share
of
passive
assets
is
not
surprising,
but
the
growth
of
the
index
component
among
equity
and
especially
bond
funds
confirms
a
clear
preference
on
the
part
of
investors.
The
difference
between
10-year
organic
growth
of
passive
and
active
funds
is
in
any
case
in
favour
of
the
former
and
particularly
strong
between
equities
(7%
vs.
154%)
and
bonds
(52%
vs.
328%).
So
let’s
look
in
more
detail
at
which
Morningstar
categories
(equities
and
bonds)
are
dominated
by
passive
strategies
in
the
tables
below.
Global
emerging
market
equity
funds
are
a
recent
notable
example;
here
the
passive
component
marked
a
10-year
organic
growth
of
253%
against
the
-7%
of
active
funds.
Or
we
could
look
at
US
large-cap
growth
equities,
where
passive
assets
grew
from
27%
of
the
total
at
the
end
of
2014
to
74%
at
the
end
of
2023.
Another
striking
case,
not
included
in
the
table,
concerns
technology
sector
equity
funds,
where
passively
managed
assets
rose
from
3%
to
46%
over
the
same
time
period.
Even
within
the
fixed
income
universe,
as
we
see,
there
are
categories
dominated
by
ETFs,
such
as
those
dedicated
to
US
Treasuries
or
UK
government
bonds.
Also
noteworthy
here
are
global
bond
funds,
in
which
the
passive
component
has
risen
from
11
to
almost
50%
of
total
assets
over
the
past
10
years.
An
important
category
such
as
euro
government
bonds
also
has
41%
of
its
assets
managed
by
trackers
(up
from
29%
some
10
years
ago).
ETFs
are
Winning
But
Active
Management
Fights
Back
At
this
point,
however,
I
think
it
is
important
to
make
one
thing
clear:
in
this
analysis
we
are
dealing
with
aggregate
data
and
therefore
drawing
general
conclusions.
Although
our
Active/Passive
Barometer
has
shown
for
years
now
that
the
majority
of
active
managers
are
unable
to
beat
their
benchmark,
it
would
be
wrong
to
take
the
above
numbers
as
a
recommendation
to
“always
go
passive”
or
to
think
that
active
management
is
destined
to
disappear,
especially
in
certain
investment
types.
Those
(few)
quality
active
managers
will
always
be
able
to
generate
value
for
investors.
It’s
important
to
be
aware
that
beating
the
market
over
the
medium
to
long
term
is
difficult
and
that
identifying
the
managers
who
can
actually
generate
alpha
in
that
particular
category
is
vital.
As
was
well
explained
by
my
colleague
Johanna
Englundh
in
this
article,
a
world
without
active
managers
would
be
boring,
and
perhaps
even
dangerous.
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