Active ETF flows lagging behind passive peers: Morningstar
Passive ETFs are seeing stronger flows than their active counterparts despite the proliferation of active launches this year, according to Morningstar.
In its Australian Asset Manager report for Q3 2025, the research house surveyed seven active asset managers in Challenger, GQG, Insignia, Magellan, Perpetual, Pinnacle, and Platinum.
It noted this year had seen traditional active managers aim to compete with passive players by launching dual-access structures or active ETF versions of existing managed funds, but this was yet to pay off in terms of inflows.
Recent active ETF launches include those from traditional asset managers such as Schroders, PIMCO, JP Morgan Asset Management (JPMAM), Ausbil, and Perpetual, many of whom cited demand from financial advisers as a reason for the launch.
“Traditional active managers face continued market share losses, as many still charge high fees that are difficult to justify and unsatisfactory performance. Active managers have launched their strategies via ETFs in response to growing passive competition, yet passive ETFs still attract stronger flows due to their lower fees,” it said.
“Competition is further intensifying as passive leaders like Vanguard and BlackRock also offer actively managed products, leveraging their scale advantage to further compete with traditional active managers.”
One reason that passive is still the greatest flows is around cost, with Morningstar finding the largest proportion of active ETFs are priced between 80 and 100 bps, and a small proportion have a fee level of 200 bps or more. On the other hand, most passive ones have a fee level of up to 60 bps, and none are priced more than 100 bps.
Similar research by EY found two-thirds of industry flows during the first quarter of 2025 went into the 90 passive funds, which had an expense ratio of zero to 25 bps, indicating cheaper is better for consumers.
More broadly, traditional managers, Morningstar said, were unlikely to be able to achieve the consistent outperformance needed to recapture the market share lost to ETF providers, as well as superannuation industry funds in the future.
“Barring lasting, significant performance improvements, firms will be forced to pursue more defensive measures such as realigning compensation or forging external partnerships to defend market share and earnings,” it said.
“Among active managers, firms focused on conventional equity and fixed income products remain at risk, given their replicability by passive vehicles. Conversely, firms specialising in less commoditised segments such as private credit or specialised fixed income, are relatively better positioned to grow.”
AUTHOR
Laura Dew
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