Moody's: Active management will 'shrink substantially' as passives popularity grows

S&P report predicts passive fees could hit zero

The combination of active fund underperformance and tighter scrutiny on fees is placing the future of active management under threat as investors increasingly choose low-cost passive options, according to rating agency Moody's.

In a new report Industry Flows Actively Moving to Passive, the firm found passive investments made up one-third of the US mutual fund market and this proportion is expected to grow further. This demand has been driven by the absolute underperformance of active managers versus their benchmarks in a variety of market conditions, as well as the high fees charged by active funds and new US regulation pushing for greater transparency on fees. Will rise of passives help or hinder holding management to account? Stephen Tu, a vice president and senior analyst at Moody's, said: "Under the n...