Passive investment gains trounce active pains in Europe

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The probable outcome is based on data supplied to FN by Morningstar, which shows that passive funds registered net inflows of €69 billion in Europe over the 11 months to November 30, compared with €43 billion for active funds.

A spokesman for the data provider said this was likely to be a first for a calendar year.

Passive funds make their strongest gains during periods of uncertainty, when investors are reluctant to get trapped in relatively expensive active strategies. In November, passive funds gained a net €7.1 billion in Europe following the surprise election of Donald Trump as US President, against an outflow of €16.9 billion from active funds.

The Morningstar data includes exchange-traded funds, cap-weighted and smart beta funds. It excludes money-market funds.

Net inflows across both strategies in Europe are significantly below 2015 levels, however, when passive funds gained €101 billion and active funds €275 billion.

The pro-passive trend has been more pronounced in the US. In the year to the end of November, passive funds in the US gained a net $ 428 billion, against a net $ 285 billion outflow from active vehicles. In November, passive funds gained $ 71 billion, against an active outflow of $ 66 billion.

The switch to passive follows poor performance from active managers.

Tony Ressler, the chief executive of alternative investment firm Ares Management, said: “There [are] a whole load of active managers that have clearly underperformed, which is why so much capital has moved into passive accounts and passive managers.”

Additional reporting by Jessica Davies

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