Which Investment Vehicles Will Prosper? Active or Passive?


ETFs are growing at a rapid clip. In fact, some are predicting the death of the traditional, actively managed mutual fund. Passively managed ETFs are great, but don't expect actively managed funds to die a quick death.

Our friend Brad Hintz, financial services analyst at Bernstein Research (and a great guy who says Sallie Krawcheck "saved" his life by hiring him to Bernstein --- otherwise he would have perished in the World Trade Centers) says:

  • Our report attempts to dimension the severity of the threat from passive management. We estimate passives will continue to grow faster than the industry for a time but reject extreme predictions of the demise of active management.
  • We forecast a 7% nominal CAGR for U.S. institutional passive equity, a 16% CAGR for non-U.S. institutional passive equity, a 14% CAGR for U.S. passive retail; a 15% CAGR for ETFs; and a 9% CAGR for passive equity mutual funds.
  • Firms in our coverage group with the greatest exposure to passives are BlackRock (56% of total AUM) and Invesco (16%), but do not view that in itself as an investable thesis. Franklin Resources (Outperform, $145 PT) remains our highest conviction idea.

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