This report describes the competitive landscape for passively and actively managed funds since 2006 in Canada and the United States.

In 2018, Canadian passive funds increased their market share from 10.8% to 11.5% on the back of a positive flow of $10 billion. Meanwhile, Canadian active funds attracted $5 billion. We estimate that Canadian passive funds post a weighted average Management Expense Ratio of 0.31%, compared to a substantial 1.67% for active funds. In the U.S., passive funds increased their market share from 35% to 37%. U.S. passive funds attracted $453 billion. Meanwhile, active funds experienced an outflow of $304 billion.

Since 2007, Canadian passive funds have doubled their market share, from 5.2% to 11.5%. During that period, both passive and active funds attracted a cumulative $77 billion in net new money. Since 2006, U.S. passive funds have more than doubled their market share, from 16% to 37%, and attracted a net money flow of $3.8 trillion, compared to a modest $583 billion for active funds.

Overall, passive funds are slowly gaining ground in Canada, while grabbing market share at a fast pace in the U.S. If passive funds keep increasing market share at the current rate, they could represent 50% of the U.S. fund industry by 2025. We also highlight the substantial savings realized by the Canadian investors who choose passive funds. Considering the 1.36% fee difference between active and passive fund fees, we estimate this net saving to $1.7 Billion dollar for 2018. In our opinion, an individual active manager needs exceptional skill to overcome such a high hurdle in favor of passive funds and outperform a basic, total market fund.