The rise of passive indexing has been the most significant investment trend of the past decade. It is worth noting, however, that the total amount of money managed passively is a tiny share of the world’s total assets. Global equities are more than $82 trillion; fixed income is $103 trillion; there are trillions more invested in currencies, commodities and real estate. Passive may be making strong strides, but active management is how most of the investment assets in the world are managed today.
This column was provided by Bloomberg News.
1. There is no one definitive data set for the market capitalization of stocks and bonds around the world. I used a variety of sources, and while the totals never added up precisely, they were all pretty close: I used Vanguard for equity, fixed income and non-publicly traded company stock; Morningstar for equity and fixed-income flows (via Nir Kaissar); the Securities Industry and Financial Markets Association for global bond totals (via Dave Nadig); Russell Indexes for U.S. equity; and Savills for global real estate. These were reviewed against the Federal Reserve’s Z1 Financial Accounts of the United States.
2. For our purposes, we shall exclude private (non-public) corporate equity of about $15 to $20 trillion. Also excluded from the total: $217 trillion in global real estate; about $46 trillion of that is in U.S. residential and commercial real estate.
3. Commonly called 40 Act funds, a reference to the Investment Company Act of 1940.
4. Another proxy that could be used for U.S. equities is the Russell 3000; it covers most, but not all, U.S.-listed stocks. Guestimating your way to total U.S. market value generates a number similar to the one Vanguard comes up with: About $33 trillion for the Russell 3000 Index, plus another $2 or $3 trillion in equities and the non-trading stock of public companies.