For all the industry has heard about the trend toward cheap, passive products it may come as a surprise to some that BlackRock posted outflows from its passive indexes last quarter.
Since the financial crisis, actively managed products have been bleeding assets and the passive products have sucked them up like super-powered vampires. But in its earnings call Wednesday, BlackRock reported $31 billion in outflows from index products and $23 billion in inflows to active ones, writes Josh Brown in his Reformed Broker blog.
Maybe the change shouldn’t come as a total surprise, says Brown. The S&P 500 has been pretty flat for almost the whole of 2015. Passive products benefit from patience, and investors may be discovering they’re not as patient as they thought, he adds. Add the fact that active products are having a better year than they did in 2014, and the flows are inevitable. Writes Brown:
The chase never ends. It just bides its time until there’s something new to glom onto. In this case, it’s momentum. Amazon, Facebook, Netflix and the biotech sector have it. Institutions want it. Especially in a flat market that chops around a tight trading range and never goes anywhere.
But, a new found surge into active management may not be a great sign. Says Brown:
Chasing the stocks with the highest price appreciation over the last 12 months (momentum) in a market selling at one of the highest historic valuations is a phenomenon we tend to see toward the latter stages of a bull market.
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