Active management viewed as ‘nearly zero-sum’ in face of ETFs
The latest Morningstar asset manager survey believes ETF providers are likely to retain the market share they have gained from active managers.
The firm’s Asset Manager 2025 Outlook covered the performance of seven ASX-listed asset managers during the first quarter of 2025 and detailed the competitive pressures they were facing from ETFs.
The sharp rise in the number of passive funds, offered at a low-cost mean outperformance by active managers, is crucial if they want to justify their fees.
Financial advisers are increasingly looking to ETFs as an investment vehicle to meet client interest. Adviser Ratings previously found that one-third of advisers are planning to lift their ETF allocation in the next 12 months.
Equity analyst, Shaun Ler, said: “Our covered firms, as a group, lack the consistent performance that asset managers need to regain market share lost to ETFs and industry funds. Most have relatively average peer-relative returns.
“Most firms face competitive pressure and must improve performance, adjust remuneration structures, explore external partnerships or increase distribution spending to defend their market positions.
“We view traditional active management as nearly zero-sum as firms grow by taking market share from peers rather than structurally winning against passive investments.”
Those active firms most likely to suffer from the dominance of ETFs are those operating in the traditional equity and fixed income space as this is most easily replicable by passive funds.
The only one of its covered firms, which includes Challenger, GQG, Magellan, Perpetual, Pinnacle, Platinum and Insignia, is the US-headquartered GQG Partners.
“GQG is an exception, benefitting from a strong long-term track record, though short-term challenges highlight the difficulty to consistently outperform.”
The findings reflect commentary that fund managers need to access the ETF market if they want to remain competitive and reach the intermediary market.
The Australian ETF landscape has enjoyed significant growth over the past decade, rising from assets under management (AUM) of $10 billion in 2014 to nearly $250 billion at the end of last year. For Global X ETFs Australia, it now has 43 local ETF vehicles, and its AUM surpassed $9 billion in January and is on track to reach $11 billion by the end of 2025.
AUTHOR
Laura Dew
Recommended for you
Betashares chief executive, Alex Vynokur, has said that the firm is focused on financial advisers “more than ever” as it grows the business, having announced a merger with managed account provider InvestSense.
L1 Capital has confirmed it intends to vote against the conversion of the Platinum Capital LIC into a listed ETF, meaning the deal “has a high probability of failing” due to L1’s substantial shareholding.
Pinnacle Investment Management has continued its focus on international expansion with the appointment of a managing director from T. Rowe Price.
Financial research firm Wealth Data, which publishes the weekly financial adviser numbers, has been sold to fintech firm Padua Solutions.
