Brian Chappatta, Columnist

If Passive Funds Are iPhones, Active Ones Are Landlines

Stock and bond picking won’t vanish, but mutual fund outflows show they’re endangered.

January 18, 2019 at 11:00 AM UTC

Brian Chappatta is managing editor of Bloomberg News' leveraged finance and distressed debt teams. He was previously managing editor and team leader of its wealth group. Before that he was a Bloomberg Opinion markets and finance columnist and a bonds reporter for Bloomberg News.

Adapt or diminish.
Photographer: Bay Ismoyo/AFP/Getty Images

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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.”