Passive index funds now own a bigger chunk of US stocks than active funds for the 1st time
- Passively managed
index fundshave hit a milestone by overtaking actively managed funds in US stock ownership. Passive fundsheld 16% of US stock marketcap, compared with 14% for active funds, at the end of 2021.
Passively managed index funds now own a bigger share of the US stock
At the end of 2021, passive index funds that focus on shares in US corporations accounted for 16% of
At the same time, actively managed funds held 14% by market value, meaning the typically lower-cost passive products have overtaken that segment for the first time.
Both types of funds still lag the big investors — such as hedge funds, pension funds, life insurance companies, and individuals — which held 70% of US equities by value.
The unflagging rise of passive index funds — which track a particular index by holding all the assets in it or a sample of them — has seen them amass trillions of dollars in assets ever since Vanguard's Jack Bogle began offering the buy-and-hold investment strategy in the 1970s.
Those gains have been at the expense of actively managed mutual funds. In the last decade, more than $2 trillion has flowed from active to passive funds, mainly to index exchange-traded funds (ETFs), according to ICI. The situation was reversed 10 years ago, when 20% of
But Cathie Wood — who runs active investment management firm Ark Invest — and Tesla CEO Elon Musk are among those who agree the rise of passive investment has gone too far. Wood has described the shift to passive investment as a "massive misallocation of capital."
Wood argued that investors in passive funds are primed to miss out on massive returns on particular stocks, such as a 400-fold gain in Tesla shares logged before the stock was added to the S&P 500.
Despite this, demand for index funds in all assets is rising, and this has helped put a bigger share of these assets in the hands of the five largest US fund companies, ICI found. These accounted for 54% of the industry's total assets last year, while the 10 largest oversaw 83% of all assets.
"The increased concentration reflects the growing popularity of index funds — the 10 largest fund complexes manage most of the assets in index mutual funds," ICI said in its 2022 fact book.
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