In 2016, the average active fund carried a 0.75 percent expense ratio, while passive funds averaged 0.17 percent, according to Morningstar. What’s more, fewer than 1 in 5 active managers beat the basic market index they are measured against. Active fund fees have declined 19 percent over the past three years while active funds have seen fees drop just 6 percent despite the intense competition.
In all, passive funds attracted a net $563 billion from investors during 2016 while active funds gushed $325.6 billion. The flows haven’t been quite as dramatic this year as about half of large-cap managers have been beating their benchmarks.
Investors have gotten considerably more picky when it comes to choosing funds.
In 2015 and 2016, active funds that Morningstar considers the most expensive saw outflows of $627 billion, while the cheapest 20 percent of funds saw inflows of $41 billion.
In terms of individual firms, investors have flocked to Vanguard and BlackRock amid a price war among asset managers.
Vanguard founder Jack Bogle was one of the pioneers of index fund investing, though he is not as big a fan of ETFs. Over the past three years, Vanguard has raked in $739 billion of inflows while BlackRock has taken in $262 billion.
No other firm is close. Overall, BlackRock has $1.13 trillion in ETF assets while Vanguard is next with $711.5 billion and State Street has $521.3 billion, according to ETF.com. The latest data from the Investment Company Institute put total ETF assets at $2.77 trillion while the mutual fund industry excluding money market funds, has $14.3 trillion.
