The Growth of Passive Indexing and Smart-Beta: Competitive Effects on Actively Managed Funds

51 Pages Posted: 12 Apr 2021 Last revised: 11 Feb 2022

See all articles by Michael Densmore

Michael Densmore

University of New Brunswick - Fredericton

Date Written: January 31, 2022

Abstract

I investigate the extent to which competition from index funds affects fees, performance, manager turnover, and survival rates of actively managed US equity mutual funds. Disentangling the competitive effects of traditional index funds (market index) from smart-beta index funds (factor index), I show that factor index fund competition has had a negative impact on actively managed net fees, performance and management team size. In contrast, market index fund competition insignificantly affects these outcomes. I further document a negative relation between active incumbent survival rates and both factor and market index fund competition and find that this effect is most pronounced for relatively expensive active incumbents.

Keywords: Mutual Funds, Competition, Index Funds, Smart-beta, Fees, Attrition.

JEL Classification: G11, G12.

Suggested Citation

Densmore, Michael, The Growth of Passive Indexing and Smart-Beta: Competitive Effects on Actively Managed Funds (January 31, 2022). Available at SSRN: https://ssrn.com/abstract=3823328 or http://dx.doi.org/10.2139/ssrn.3823328

Michael Densmore (Contact Author)

University of New Brunswick - Fredericton ( email )

Bailey Drive
P.O. Box 4400
Fredericton NB E3B 5A3, New Brunswick E3B 5A3
Canada

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
138
Abstract Views
502
rank
285,756
PlumX Metrics