Recently, I noted that the trend toward, as more than 100 percent of the net flows into stock funds were going into the lowest quartile of expenses -- and more than 80 percent of the funds in that quartile are index funds. While bad news for Wall Street, it's great news for investors, who will be keeping much more of the returns that the market provides, and transferring less of their wealth to active managers.
This trend isn't limited to the U.S., which over the past five years has seen $564 billion pour into index funds while actively managed funds experienced withdrawals of $214 billion. On May 10, the Swedish Investment Fund Association reported that through April more than half of the total net inflow into stock funds so far this year had been invested in index funds (SEK 12.9 billion). For the month of April, the figures were even more compelling. While all stock funds were experiencing net outflows of SEK 3.0 billion, index funds experienced inflows of SEK 1.6 billion.
Whether it's in the U.S., Sweden or anywhere else in the world, there's no army strong enough to stop an idea whose time has come. (The first index fund was created by John Bogle, founder of Vanguard, in 1975) The majority of actively managed funds are "dead men walking." They just don't know it.
Photo courtesy Flickr user Flo_p