The Passive Vs. Active Fund Monitor (2021)

In 2021, Canadian passive funds increased their market share from 13.5% to 14.5% on the back of a record inflow of $33 billion . Meanwhile, Canadian active funds attracted $114 billion. Passive funds represent $280 billion of roughly $2 trillion in total AUM. We estimate that Canadian passive funds posted a weighted average Management Expense Ratio of 0.26%, compared to 1.55% for active funds. In the US, passive funds increased their market share from 40% to 42%. US passive funds attracted a record $881 billion, while active funds attracted a $329 billion inflow. For the world excluding North America, the market share of passive funds increased from 18% to 20% in 2021. For the world as a whole, the passive market share amounted to 31% at the end of 2021, up from 28% in the previous year.

Since 2012, Canadian passive funds have increased their market share from 9.6% to 14.5%. During that time, passive funds attracted a cumulative $135 billion in net new money compared to $190 billion for active funds. During the same period, US passive funds have increased their market share from 23% to 42% and attracted a net money flow of $4.5 trillion, compared to a $129 billion outflow for active funds. Worldwide, passive funds have increased their market share from 15% to 31%. Over ten years, passive and active funds had similar cumulative inflows of $6.9 trillion and $7.3 trillion, respectively.

In short, passive funds dominate asset gathering in the United States. Interestingly, the big winner of this trend is the Vanguard Group, a firm that does little (if any) advertising. In Canada and elsewhere in the world, the trend towards passive is healthy, but not nearly as strong as in the United States. This is perhaps explained by a more competitive investment industry and a stronger culture of passive investing south of the border. Lagging the US market is costing Canadian investors as passively managed funds remain on average 83% less expensive than their active counterparts. The extra cost of active funds does not provide much benefit, as they generally lag their passive counterparts in performance. But glimmers of hope are appearing, with passively managed funds increasing market share in six consecutive years in Canada. In recent years, we’re even observing that traditionally active money management firms such as Franklin Templeton and MacKenzie have launched serious offerings of low-cost passive funds. We think this is a sign that with increasing investor awareness, the trend towards passive funds will be there for years to come.