This report describes the competitive landscape for passively and actively managed funds over the last eleven years in Canada and the United States.
In 2016, Canadian passive funds increased their market share from 10.5% to 11.3% on the back of a positive flow of nearly $11 billion. Meanwhile, Canadian active funds attracted $10 billion. Passive flows outpaced active flows for the first time since 2012. Over the same period, passive funds increased their share of the U.S. market from 30% to 34%. U.S. passive funds have attracted $490 billion, in stark contrast with outflows of $326 billion for active funds.
Since 2007–2008, Canadian passive funds have doubled their market share from 5.6% to 11.3% and have attracted $62 billion in net new money, compared to $47 billion for active funds. Since 2006–2007, U.S. passive funds have more than doubled their market share from 16% to 34% and have attracted a $2.8 trillion net money flow, compared to a modest $735 billion for active funds.
Overall, passive funds are gaining ground both in Canada and the U.S. with the help of steady inflows of money. However, the Canadian passive fund industry remains modest relative to the U.S., where passive funds have grown at such a high pace that they are posing a threat to the active fund industry. Finally, we believe the rise of passive funds in general and the corresponding decline of active funds represents a significant transfer of wealth from the financial services industry to the retail investors, as actively-managed funds charge average fees that are much higher than passively-managed ones and yet appear to under-perform.