。 2 Global Markets Strategy FL Library -Fund flows 20 February 2019 Nikolaos Panigirtzoglou (44-20) 7134-7815 nikolaos.panigirtzoglou@jpmorgan Figure 1: Share of active vs passive US domiciled funds As % of total AUM. Active and passive funds are US domiciled. Passivefunds include ETFs. Last obs. is Dec’18. Source: ICI, J.P. Morgan. Figure 2: Overall cumulative flows into active and passive USdomiciled funds In $tr. Active and passive funds are US domiciled. Passive funds includeETFs. Last obs. is Dec’18.Source: ICI, J.P. Morgan. The Q4 outflows from active funds were not onlyconfined to equity funds but also bond fundsas shown inFigure 3and Figure 4. As a result the share of passivefunds in US domiciled funds rose by 1.2 percentagepoints duringthe second half of 2018 to 36%. It stood atonly 23% five years ago, so the average pace of increasehas been 2.6 percentage points per annum. At this pace,the share of passive in US domiciled funds would exceed50% within 5-6 years.But the shift is already more advanced in the equity fundspace. The share of passive in US domiciled equity fundsrose to 44% at the end of 2018 vs. 30% five years ago.So the average pace of increase has been 2.8 percentagepoints per annum. At this pace, the share of passive inUS domiciled equity funds would exceed 50% within 2- 3 years.The shift from active to passive is a lot less advanced inthe bond fund space and the pace is slower. The share ofpassive in US domiciled bond funds rose to 19% at theend of 2018 vs. 10% five years ago. So the average paceof increase has been 1.8 percentage points per annum,significantly smaller than the 2.8 percentage points perannum pace seen for equity funds. The slower shift fromactive to passive in bond funds over the past five yearsreflects the absence of a selling trend in the active bondfund space. While Q4 of last year saw significant sellingof active bond funds, the period preceding Q4 was aperiod of relative stability as shown in Figure 4. Thiscontrasts with active equity funds which had seen steadyselling since 2014 (Figure 3).Could the relative performance of active equity vs. bondmanagers explain this difference in the active to passiveshift between equity and bond funds We do not thinkso.Figure 5shows the proportion of active US domiciledbond mutual funds that are outperforming theirbenchmarks. Itshows that the majority of active bondfunds had underperformed their benchmark last year andhad underperformed in two of the past five years. Figure6shows the corresponding picture for active equitymutual fund managers. More than half of US domiciledactive equity funds outperformed their benchmarks lastyear. Despite this, last year saw large outflows awayfrom active equity funds intoETFs. And over the pastfive years active equity mutual fund managershadoutperformed in three years, therefore producing asimilar success ratio to bond managers. In other words,there is little evidence of active US domiciled bondmanagers performing better than their equitycounterpartsover the past five years to explain thedifference in the active to passive shift between equityand bond funds.0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 05070911131517 Passive Active 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 00020406081012141618 Passive Active3 Global Markets Strategy FL Library -Fund flows 20 February 2019 Nikolaos Panigirtzoglou (44-20) 7134-7815 nikolaos.panigirtzoglou@jpmorgan Figure 3: Overall cumulative flows into active and passive equity USdomiciled funds In $tr. Active and passive funds are US domiciled. Passive funds includeETFs. Last obs. is Dec’18.Source: ICI, J.P. Morgan. Figure 4: Overall cumulative flows into active and passive bond USdomiciled funds In $tr. Activeand passive funds are US domiciled. Passive funds includeETFs. Last obs. is Dec’18.Source: ICI, J.P. Morgan. Figure 5: Share of 100 biggest active US domiciled bond fundsoutperforming benchmarks In %. Source: Bloomberg, J.P.Morgan. Figure 6: Share of 100 biggest active US domiciled equity fundsoutperforming benchmarks In %. Source: Bloomberg, J.P. Morgan. What then explains the greater shift from active topassive in the equity fund vs. bond fund space Webelieve there are two likely reasons.One reason has been the greater adoption of equity ETFsas more liquid, cost effective and transparent tradingvehicles by institutional relative to bond ETFs. BondETFs have seen slower adoption by institutionalinvestors as bond index products are in general lesssuited to them. This is because several institutionalinvestors such as pension funds and insurance companieshave bespoke liabilities to match, making standard bondindex products unsuitable.-1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 00020406081012141618 Passive Active -0.2 0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8 00020406081012141618 Passive Active 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 06070809101112131415161718 0% 10% 20% 30% 40% 50% 60% 70% 80% 060708091011121314151617184 Global Markets Strategy FL Library -Fund flows 20 February 2019 Nikolaos Panigirtzoglou (44-20) 7134-7815 nikolaos.panigirtzoglou@jpmorgan A second reason is the greater competition on fees in theequity fund space facilitated by greater liquidity, morestandardization and more electronic trading in equities.In bonds, both market liquidity and the share ofelectronic trading are lower than thosefor equities due tomore fragmentation, less standardization and a muchbigger number of unique ISINs, preventing bond fundfees from declining as much and as fast as in the equityfund space.What about the active to passive fund shift outside theUS The shift into passive is generally less advancedoutside the US. Overall, across both equity and bondfunds, the passive fund share stands at 15% currently inEurope well below the 36% share seen in the US.But thepace, which had been lower in Europe in the previousyears, looks set to accelerate over the coming years dueto greater fee transparency and competition induced byregulations such as Mifid2. Over the past years the shiftfrom active to passive has been around one percentagepoint per annum in Europe. We believe that this pacecould double over the coming years as fee transparencyand competition intensify and as traditional banknetworks become less important in fund distributionacross Europe. In Asia the share of passive funds is being boostedby thegrowth of equity ETFs in Japan induced by BoJ’s equityETF purchase program as well as the greater use ofequity ETFs by GPIF. The share of passive equity fundsamong all equity funds domiciled in Japan has surpassedthe 50% mark already, standing at 58% currently. Thiscompares to 44% in the US. In other words, Japan hasalready surpassed the US in the active vs. passive shift inthe equity fund space. However, if we exclude BoJ’sequity ETF holdings, this passive share of equity fundsin Japan drops to 31%, i.e. somewhere in-between thecorresponding share in Europe (25%) and the US (44%).What about the performance of active managers outsidethe US Figure 7shows the proportion of active non-USdomiciled bond mutual funds that are outperformingtheir benchmarks. It shows that a bigmajority of activebond funds outside the US had underperformed theirbenchmark last year, following six years of goodperformance. Thepicture is similar for non-USdomiciled active equity funds as shown in Figure 8. Abig majority underperformed last year following sixyears of overall good performance. In other words, 2018was a bad year for active managers outside the USbreaking a previous trend of outperformance vs. their UScounterparts. Although it is possible that poor 2018performance will weigh on active fund flows outside theUS this year, we believe that greater fee transparency,competition and regulations will be more important thanperformance in driving the active to passive fund shiftoutside the US.Figure 7: Share of 100 biggest active non-US domiciled bond funds outperforming benchmarks In %. Source: Bloomberg, J.P. Morgan. Figure 8: Share of 100 biggest active non-US domiciled equity fundsoutperforming benchmarks In %. Source: Bloomberg, J.P. Morgan. What about the implications from this shift from activeto passive funds In our previous analysis, we outlined anumber of potential implications from this shift. One isthat end investors, such as retail investors, are becomingin general more important in driving markets, as swingsin retail investors’ sentiment can be transmitted moredirectly to markets via passive fund than active fundswhere a fund manager ultimately decides on when andhow to deploy assets. Indeed, the remarkably persistentinflows into largely passive equity funds in 2017, whichsaw a record annual inflow into equity funds, and therecord monthly inflow in January 2018 likely provided a0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 06070809101112131415161718 0% 10% 20% 30% 40% 50% 60% 70% 80% 06070809101112131415161718 。。。。。。