THE RISE OF PASSIVE

PASSIVE funds are not new. Elize Botha, the managing director of Old Mutual Unit Trusts, says the first index-tracking funds were launched in the United States in the mid-1970s, and exchange traded funds (ETFs) were launched in the US in 1993 as an alternative to traditional index funds. However, what is relatively new is how passive investing has caught on with investors.

Botha says: “Globally, the asset-management world is seeing a massive shift towards passive investing, with the US and Japan leading the charge. Research by Moody’s Investors Service suggests that index funds will have more than half of the investment-management business in the US by 2024, up from the current 30%. According to Bank of America Merrill Lynch, in Japan, nearly 70% of the assets under management of Japanfocused equity funds are passive, mainly ETFs.

“In South Africa, we have also seen a rise in the number of passive funds and now have approximately 100 passive unit trusts and over 50 ETFs.”

Botha says a possible reason for the take-up of passive in the US is the tax advantage that ETFs offer by way of lower deferred capital gains tax, which is not the case in South Africa.