Intuitively, active management should never truly disappear, as personal landlines might someday. A very select few Active Managers can make a legitimate claim that they are smarter than the rest.. And perhaps there’s something comforting about having a human at the helm of a fund, rather than setting it on autopilot.
Even so, active managers have to adapt. They can either join the revolution, as Franklin did by adding a suite of passive ETFs, or further consolidate, as Invesco Ltd. did by acquiring OppenheimerFunds. Neither is guaranteed to work, given how much market share that BlackRock Inc. and Vanguard already command in the low-cost space, to say nothing of Fidelity Investments, which took fees to zero on some of its funds.
As far as analogies go in the financial markets, this one from Moody’s Investors Service is brutal: Active mutual funds are to landlines as passive funds are to mobile phones. That’s the takeaway from analysts led by Stephen Tu after seeing a record $369 billion pour out of long-term mutual funds in 2018, while flows into exchange-traded funds remained largely in line with recent years. That stark difference, Moody’s says, is “credit negative” for traditional asset managers and may “indicate a loss of relevance with clients.”