According to research from JPMorgan, the shift from actively managed funds to passive index-tracking funds has accelerated this year. The move has been boosted by a jump in flows to bond and mixed-asset funds. The share of assets under management held in U.S. passive bond and hybrid funds rose from 23% of all equivalent U.S. fund assets at the end of 2019 to 28.5 % by August 2022. Peter Sleep, senior portfolio manager at 7 Investment Management told Financial Times that “Bond exchange-traded funds were now catching up with their more broadly adopted equity ETF counterparts as the offering had broadened and become more cost competitive.” Jane Sloan, head of iShares and index investing Emea at BlackRock, added that “Half of all inflows into global ETFs this year had been into bond ETFs.” She also noted that “More people are using ETFs to trade bonds as they move within fixed-income asset classes.” This explains why trading volumes in bond ETFs are up 35% since 2020 and 2021. Tax loss harvesting is another reason for the shift as it provides an incentive for investors to sell out of their actively managed fixed-income funds.

Finsum:Due to a combination of tax loss harvesting, ETFs becoming more cost competitive, and an increase in bond ETF trading, the shift from active to passive bond funds is accelerating.