Even outside U.S., passive investments widen share of sales over active

Gap between active and passive funds in international equities reaches highest level since financial crisis.
APR 07, 2015
Last month, Index funds tracking global equities gained their largest edge, in total sales, over actively managed funds since the financial crisis, Morningstar Inc. said Tuesday, as investors bypassed stock-pickers to capture the markets' strong performance. In April, investors handed over more than three quarters of the new money that moved into international mutual funds and exchange-traded funds, a total of $32.4 billion, to index fund managers. The winners were led by BlackRock Inc.'s iShares unit and the Vanguard Group Inc., which brought in $10.4 billion apiece. That included funds such as the iShares MSCI Emerging Markets Fund (EEM), whose value is up 9.2% this year, as of Monday, and the Vanguard Total International Stock Index Fund (VGTSX). The ETF share class of that fund is up 11%. FAVORABLE COMPARISON Those peppy results internationally compare favorably with the 3.4% delivered this year by the S&P 500 U.S.-tracking benchmark. While index trackers saw the greatest inflows, active managers did still receive nearly $10 billion to put to work. And passive funds are often traded by other active managers. But last month brought the largest gap in flows between active and passive, $22.4 billion, since September 2008. That year, the category's active mutual fund delivered a -44% return amid the financial crisis and managers were punished by investors. The result comes even as active managers who work in international markets argue that their complexity, diversity as well as transparency and corporate governance issues might give an advantage to active managers. The Morningstar foreign large blend category that includes active managers is up 11%. The MSCI ACWI ex USA Index, often used as a benchmark for that category, is up 9.9%.

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