Passively Managed Funds Expected to Rise

Passive exposure will grow to 37% of adviser-managed holdings by 2020, research found.

In 2011, passively managed funds accounted for 20% of mutual fund and exchange-traded fund (ETF) exposure, according to Tyler Cloherty, senior analyst at Cerulli Associates.

The firm’s most recent report, “The Cerulli Edge-Advisor Edition, 4Q Issue, alternatives and emerging markets are the latest sleeves within many adviser portfolios, a trend driven by the opportunity for diversification benefits and growth opportunities. Many advisers indicate they use passive and active managers as complements to one another.

Advisers are favoring passive options, with sector allocations receiving the largest new flows, the firm said. “There is a transition toward lower index options as advisers are seeking to regain control over their clients' portfolios,” Cloherty said. “ETFs and passive investments synced well with adviser demand due to their low cost, liquidity and ease of trading.

Cloherty said the firm expects active managers to continue to retain significant share within adviser portfolios. “Nearly 50% of advisers still believe that active managers can consistently outperform, he said. “There is an opportunity for asset managers to compete where new money is going by positioning themselves within growth markets.”