The world of mutual funds and exchange-traded funds (ETFs) has reached staggering proportions, with global net assets hitting a record $38 trillion in 2022. However, despite the immense size of the industry, a handful of dominant brands continue to reign supreme.
According to data from Morningstar, Vanguard stands tall as the world’s largest fund provider, boasting a staggering $6.6 trillion in net assets. Trailing behind is iShares with $2.9 trillion. These two giants alone account for a quarter of the total global net assets. While both experienced net inflows, iShares’ growth rate outpaced Vanguard’s significantly, collecting over $222 billion compared to Vanguard’s $101 billion.
State Street, managing the largest ETF in the world, the SPDR S&P 500 ETF, secured the fifth spot on the list with $1.1 trillion in net assets. It was the only other brand on the list to witness net inflows, making it a popular choice among retail investors in early 2023.
On the flip side, smaller industry titans like T. Rowe Price and Franklin Templeton faced net outflows for the second consecutive year. These firms focus on active management, aiming to outperform the market through investment managers’ decisions.
The industry is undergoing a significant shift as investors increasingly favor passive funds and ETFs over actively-managed and mutual funds. This trend is largely attributed to the higher fees and subpar performance of many active funds. In 2022, passive funds attracted inflows of $348 billion, while actively-managed funds saw outflows of $349 billion. ETFs, in particular, experienced a surge in popularity, attracting $754 billion in net inflows.
Passive funds now make up 38% of global assets, doubling their share from 2013. These funds offer cost-effective investment ownership due to their low expense ratios, with actively-managed equity mutual funds averaging 0.66% compared to index equity mutual funds’ average of 0.05%.
While investors benefit from the advantages of passive funds, such as lower costs and efficiency, there are concerns about the consolidation of the industry. The Federal Reserve warns that if a major firm were to face a significant event, such as a cybersecurity breach, it could trigger mass redemptions and potentially impact the asset management industry as a whole.
The data utilized in this report comes from Morningstar’s Global Fund Flows Report, providing valuable insights into the dynamics of the mutual fund and ETF industry.
