A chart of the S&P 500 Index, upper right, is displayed on a computer sceen on the floor of the New York Stock Exchange (Photographer: Daniel Acker/Bloomberg)

Next Year Could Be the Last Time Stock Pickers Rule Investing

(Bloomberg) -- It will mark a turning point forever etched in the minds of U.S. money managers: the year passive overtakes active investments.

That moment is coming, according to calculations by Bloomberg News.

In 2019.

Stock pickers, who once beat markets with their gut instinct and appetite for risk, will be relegated to second place in the minds of investors if money continues to flow into low-cost index funds at the current pace and the market doesn’t crash. There’s plenty of blame for this turnabout: flinty investors obsessed with fund expenses, the surge in exchange-traded funds and active managers falling short of their benchmarks.

Next Year Could Be the Last Time Stock Pickers Rule Investing

The charts below tell the story.

Next Year Could Be the Last Time Stock Pickers Rule Investing

When we add fixed-income funds domiciled in the U.S. to our equity calculations, passive surpasses active investments in 2020. See below.

Next Year Could Be the Last Time Stock Pickers Rule Investing

It’s all about fees. Even as fees fall, active managers still charge so much more than indexers that they can only win clients with great returns. And that’s not enough for some investors, who are pulling money from active managers with abandon. U.S. active equity funds have suffered outflows every month this year through October, according to ICI.

Next Year Could Be the Last Time Stock Pickers Rule Investing

Along came ETFs, which are almost always cheaper than similar mutual funds. There were about 100 ETFs in 2002. Now, with almost 2,000 in the mix, investors have plenty of alternatives to actively managed funds.

Next Year Could Be the Last Time Stock Pickers Rule Investing

To contact the authors of this story: Alan Mirabella in New York at amirabella@bloomberg.net, Brandon Kochkodin in New York at bkochkodin@bloomberg.net.

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