The implications of passive investments for active fund management: International evidence

Abstract

This paper investigates how the tremendous growth in indexed investments has affected active management in the equity mutual fund industry across 32 countries. Our findings indicate that the growing competition from passive funds does not reduce the fees of actively managed funds. Moreover, active funds do not increase their product differentiation by diverging more from their benchmarks when they face more competitive pressure from indexed products, though they do sometimes charge higher fees and reduce their activity. Thus, our tests indicate that indexed and active funds can coexist and attract different clienteles.