Financial advisors are helping to speed the move from active management, with 73% saying in a survey earlier this year by Broadridge Financial Solutions Inc. that they planned to keep increasing their ETF allocations.
One consolation for fund companies is that net deposits into actively run fixed-income products partly offset this year’s outflows on the equity side. Some of the shift from stock funds can be attributed to rebalancing after the run-up, according to Sean Collins, chief economist at the Investment Company Institute.
Still, the industry is adjusting to the continued ascent of indexing. Quant giant Dimensional Fund Advisors is converting six of its funds, with about $20 billion, to ETFs. Fidelity is creating ETFs that mimic the performance of mutual funds including Blue Chip Growth and Magellan.
Changing tastes can affect revenue at companies such as Fidelity, which charges 85 cents per $100 invested in Contrafund. Passive exposure to the S&P 500 through an ETF can cost as little as 3 cents per $100.
But those who pay up for Contrafund have been rewarded with annualized returns of 18% over the past five years, compared with the index’s 15%. Danoff’s fund isn’t alone: at Capital Group’s American Funds, the team-managed Growth Fund of America is also up an average of 18% since 2015.
Lesser-known funds with stellar returns are struggling to buck the outflows as well.
Artisan Partners in Milwaukee saw outflows from its Artisan Mid Cap Fund of about $765 million in 2020, according to Bloomberg estimates, despite surging 57%, making this one of the best years ever for the $7.3 billion fund. Over the past five years it’s returned an annual average of 20%. Even with the fund’s outflows, a spokesman said the firm’s mid-cap strategy is “cash-flow positive” for the year when including separately managed accounts and trusts.
Matthew Kamm, who is part of the portfolio management team, said the investment firm has a large base of clients who have been loyal over the long term. Kamm, who joined Artisan in 2003, helps oversee more than $50 billion of assets across four stock-picking strategies.
“It’s a relentless pressure on us, but it’s not supposed to be easy,” he said.
This article was provided by Bloomberg News.