Dave Young via Flickr
We all hear about the massive move away from active to passive in the US market. We also hear arguments that passive may eat the world and that active management is a zero sum game (seems like a reasonable hypothesis, but I’m not so sure).
Here is a figure from a recent CS report that highlights the US activity and the clear move away from active and into passive:
Source: CS, “Looking for Easy Games”
All of this chatter seems viable from a US-based perspective.
Interestingly enough, you don’t have to look that far to see a completely different narrative playing out. When we look North to Canada and we see an entirely different game playing out:
Source: Morningstar. Thanks to Ben Johnson for highlighting this research report and thanks to Art Johnson for bringing this to our attention!
The Canadian market highlights a completely different story — a move towards more active and a move away from the tiny amount of passive already in place.
Wild!
Here is a comparison chart of the move to passive between the US and Canadian markets:
Source: Morningstar
What Is Going On?
The real answer is “who knows,” but the Morningstar Canadian crew has an answer:
Big banks, incentives, and backward self-regulation are to blame.
Incentives certainly play a role. Perhaps recent past performance also plays role? Maybe even culture?
My takeaway is that the narrative claiming that passive is going to destroy and/or eat the financial world is too simplistic. There are a lot of mechanisms at work in the financial marketplace and their interaction effects are extremely hard to predict. I don’t have the answers and I can’t predict the future, but it will sure be fun to see how it all plays out!
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Active vs. Passive Investing in US and Canada Markets was originally published at Alpha Architect. Please read the Alpha Architect Disclosures at your convenience.
Please remember that past performance is not an indicator of future results. Please read our full disclaimer. The views and opinions expressed herein are those of the author and do not necessarily reflect the views of Alpha Architect, its affiliates or its employees. This material has been provided to you solely for information and educational purposes and does not constitute an offer or solicitation of an offer or any advice or recommendation to purchase any securities or other financial instruments and may not be construed as such. The factual information set forth herein has been obtained or derived from sources believed by the author and Alpha Architect to be reliable but it is not necessarily all-inclusive and is not guaranteed as to its accuracy and is not to be regarded as a representation or warranty, express or implied, as to the information’s accuracy or completeness, nor should the attached information serve as the basis of any investment decision. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission from Alpha Architect.
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