Passive Investing More Popular Than Active Management Since 2007
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View from the Observation Deck

  1. Most of the discussion about where investors have been allocating their capital since the start of the financial crisis has focused on the split between stocks, bonds, real estate, commodities and cash.
  2. While that information is important to know, beneath the surface there is potentially something more meaningful going on, in our opinion.
  3. The percentage changes in the total assets invested in packaged products from 12/31/07 to 12/31/11 were as follows (chart): Exchange Traded Funds (ETFs) (+72.4%); Unit Investment Trusts (UITs) (+13.2%); Mutual Funds (-3.2%); and Closed-End Funds (-23.4%).
  4. That picture looks vastly different than was the case over the four prior years when the total assets invested in all four categories surged (12/31/03 to 12/31/07).
  5. Here are those percentages: ETFs (+302.6%); UITs (+47.2%); Mutual Funds (+62.1%); and Closed-End Funds (+45.8%).
  6. ETFs and UITs are passive investments (not actively managed), with the exception of a small percentage of ETFs that employ some degree of active management.
  7. Could this be a changing of the guard where ETFs supplant mutual funds as the preferred packaged product? We'll see.
Posted on Tuesday, May 15, 2012 @ 3:16 PM

These posts were prepared by First Trust Advisors L.P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.