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Roula Khalaf, Editor of the FT, selects her favorite tales on this weekly publication.
Solely 43 per cent of lively fairness managers are outperforming their benchmarks as of [November 30] — a measure that has solely been above 50 per cent for 3 of the final 10 years and never since 2017
Jefferies additionally highlights that as of end-October, property underneath administration for US-based ETFs and index funds exceeded the retail lively AUM for the primary time:
To common readers neither of these charts can be stunning, however connecting the themes does give us an excuse to spotlight one delicate curiosity: passive fund flows are the mirror picture of lively fund flows.
It’s a much-studied development that mutual funds gather assets at the start of a calendar year. Traders put apart year-end bonuses or search to maximise tax benefits, then as December approaches they pull funds to reap tax losses or dodge distribution tax. There’s some evidence that the flip of the yr additionally acts as a immediate for buyers to note how a lot they’ve misplaced.
However for ETFs the fourth quarter is every little thing. Jefferies reckons the seasonality increase relative to common quarterly web movement in a given yr throughout all domiciles is 32 per cent, and 44 per cent for these with a US domicile:
Even this under-emphasises how a lot passive flows are weighted in the direction of December:
Why? Dunno. Having discovered no helpful educational analysis on the ETF movement seasonality and positioned nobody keen to enterprise a principle, we are able to solely speculate that it’s a screw-you impact.
Perhaps the top of yr galvanises buyers to ditch underperformers and minimize prices, which reveals up faster in ETF knowledge than in mutual fund factsheets. The typical lively fund persistently underperforms its benchmark, whereas ETFs and index funds principally are the benchmark, so every time the year-end scores are logged it’s an invocation to maneuver funds from the previous to the latter.
Now that we’ve handed the active-to-passive tipping level (at the least for US-domiciled funds), will the withering speed up or degree off? And can the principle driver of all funding exercise, tax avoidance, develop into extra seen in passive flows?
Or possibly the screw-you impact is nonsense and there’s a significantly better rationalization for ETF seasonality, during which case the remark field is open.
— Again into the lively/passive trenches (FTAV)