Active Management Picks Up

Data from Strategic Insight Simfund shows that 85% of the mutual fund asset allocation in defined contribution (DC) plans, excluding target-date and money market funds, is in actively managed funds. While passive investing may be as popular as ever across the industry as a whole, active management retains a significant presence in DC plans. Among the actively managed mutual funds in DC plans, 56% of the assets are invested in U.S. equity funds. Twenty-five percent are in international equity funds, and 19% are in fixed income.

On the passively managed side, there is clearly a heavy weighting to U.S. equity, with 75% of the assets in passively managed funds invested in this asset class. Many investors, both retirement plan participants and managers of target-date funds (TDFs), use index funds as their core portfolio holdings, emphasizing this trend. A mere 14% of the assets in passively managed mutual funds in defined contribution plans are invested in international equity funds, and just 12% in fixed income.

Looking at flows into active vs. passive over the trailing 12 months ending with this year’s second quarter, the flows are largely evenly split, with $13.9 billion being invested in actively managed funds in DC plans, and $14.6 billion being invested in passively managed funds.

However, looking at the individual quarters, it appears that actively managed funds may be coming into favor again among retirement plan participants. After redemptions of $305 million from actively managed funds in the third quarter of 2016 as well as $3.9 billion in the fourth quarter, retirement plan participants have been returning—in a big way—to actively managed funds, investing $7.9 billion in them in the first quarter of 2017 and $10.3 billion in the second quarter.