Active funds vs ETFs: who is the winner in terms of flows so far in 2021?

30 September 2021

Where have flows been since the start of 2021 ? Have investors changed their habits following the Covid 19 crisis ? Do flows to ESG funds benefit active management or ETFs ?

A regular and optimal analysis of all the flows of active management and ETF in Europe, made from the proprietary database of BSD Investing and Morningstar data, makes it possible to answer these questions. A new look in the world of portfolio management.

2021, a record year in Europe for mutual fund flows

At the end of August 2021, mutual fundraisers in Europe increased by 50% compared to the whole of 2020 to reach €611bn. The increase in savings and the sustained recovery in the financial markets following the Covid 19 crisis led to a sharp recovery in flows in the second half of 2020 which continues to accelerate in 2021. At the end of August 2021, the flows of the year were only 18% below the historic record of 2018 of €750bn. It is a safe bet that the year 2021 will surpass all records.

Why active management won the favor of investors in 2021 ?

Since the Covid 19 crisis of March 2020, active management has aroused renewed interest from investors and attracts more than 75% of flows to compare with 45% in 2019 and 58% in 2020. Flows to active management are up more than 100% compared to the whole of 2020. Investors are attracted by the flexibility of active managers to adapt to the changes associated with this new situation and to select the best companies and avoid the worst.

This rebound in active management flows comes after two years 2018 and 2019 marked by a strong disaffection. During the two years preceding the Covid 19 crisis, investors had largely acclaimed passive management, which reached a historic record in 2020 at €172bn. However, interest in passive management continues to be supported: at the end of August 2021, flows since the start of the year reached €139bn. If the market continues on the same path, this figure should also be exceeded at the end of 2021.

Are there differences depending on the asset classes ?

For equities or bonds, the big winner is active management.

Equity funds have been the big winners in Europe since the start of the Covid 19 pandemic, with almost half of the total flows. This interest was supported by low interest rates, the still accommodating policies of central banks and the numerous sectoral and thematic rotations. Flows to equity funds reached €290bn, a historic record over 10 years, and already at the end of August, up 41% compared to 2020 as a whole. It is the active funds which capture 70% of the collection towards the equity funds with €204bn of flows, a historic record. However, passive funds are not outdone. With €87bn in flows since the start of the year, 2021 may well exceed the record of 2020 (€99Md) or even that of 2017 (€110Md). If we compare to the same period in 2020, the flows of passive equity funds are almost 3 times greater.

With a third of the total flows collected, bond funds had to face a more difficult environment, low and volatile interest rates as well as a less buoyant credit environment in Europe. These flows are however up from 30% to €208bn but very far from the 2017 record of €360bn. Active management collects 77% of flows to bond management at €160bn, a significant increase compared to 2020 at + 60%. The flows of passive bond management remain sustained, for their part, at €49bn up 12% compared to the same period 2020 but far from the record from 2019 to €100bn.

The significant growth of the ESG dimension

ESG, the prefered investment of investors. Since 2019, investor interest in sustainable funds has increased considerably with the Covid 19 pandemic. Flows accelerated in 2021 and increased by 42% compared to those of 2020 to €326bn. They have exceeded flows to traditional funds and represent 53% of flows to mutual funds in Europe. The search for meaning and impact, particularly in the context of the fight against global warming, as well as the awareness of the need to better understand the long-term risks of portfolios following Covid 19, push investors towards this type of 'assets.

Active management collects more than 75% of these sustainable flows, ie. €250bn. This figure represents a historic record up by almost 50% compared to 2020.

But passive management is not outdone with €75bn of flows since the start of the year a historic record, 27% higher than all of the 2020 flows.

What should be remembered regarding flows since the beginning of 2021?

The analysis of active and passive management flows since the start of the pandemic and in 2021 demonstrates the essential role for investors of both management styles depending on the different market phases and the different asset classes and investment strategies.  The Covid 19 crisis and the boom in sustainable investment have brought the differentiating role of each style of investment to the fore.

Pour prendre des décisions optimales d’allocation entre les fonds actifs et passifs, les investisseurs doivent pouvoir s’appuyer sur une base de données fiable, ce qui est crucial pour générer de la performance dans les portefeuilles.

Article first published on citywire France on september 2021

Sources: BSD Investing and Morningstar. Data as of 31/8/2021.

Marlene Hassine Konqui