Passive reaches its plateau

He says that passive management "has probably reached a plateau."

His view is that there is a natural balance and it seems as though markets are nearly there.

One of the concerns about the growth of passive management is the power it gives to active managers.

What happens is that as passive grows it gains a greater proportion of the market therefore the power to move markets, which sits with active managers, becomes more concentrated.

"If (passive) becomes more than that natural level then a smaller number of people decide what moves the market," he says.

Lamb says in Europe very little money is put into passive funds by institutions: "It's really unusual to see them go passive," he says.

While New Zealand, and to a lesser degree Australia, have strongly embraced passive funds there is evidence starting to emerge that some of the wholesale money that has gone into index management over the past five years is starting to move back to active management.

Tax advantages are the main reason investors got into index funds in New Zealand. However the poor performance of offshore markets is making people revisit their strategies.

The markets' performance is exacerbated by fees. Because fees are always taken by the managers index funds will post returns that are less than the market.

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