Active to Passive, Passive to Active
According to Bloomberg Intelligence, lots of money flowed out of passive stock market trackers last month (-$8.4 billion) and into sector-focused funds (+$18.6 billion). This has only happened once before, and it’s a clear signal that the public no longer wants to sit on passive funds. It would rather stock pick!
There were concerns throughout the decade that too many people bought passive funds blindly. These funds have no business picking winners and losers, they just buy the whole lot, and there’s been a universal rise in stocks across markets as a result with arguably less critical analysis. Bloomberg’s data suggests the ‘passive bubble’ is deflating.
If the trend holds, active asset managers could see a resurgence. There are hedge fund managers pitching hefty ‘two and twenty’ fees to help people find security amid coronavirus uncertainty. This implies the manager makes an annual two percent on all assets under management (AUM) and twenty percent of all outperformance compared to competing passive alternatives.
It’s up to financial advisors and asset managers to strike while the iron’s hot here, but some have decided even the pros can’t be trusted in these volatile times. The barriers to entry in investing are so low that anyone can put their business instincts to the test, pluck out individual prospects, and show superstar fund managers how obsolete they’ve become!
