LIVE MARKETS-Passive investing takes lead in 2025, Jefferies says

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PASSIVE INVESTING TAKES LEAD IN 2025, JEFFERIES SAYS

According to Jefferies' 9th annual study on passive investment and ETFs, passive investing continues to gain ground, now representing 61% of total investment assets in the U.S. market at $13.7 trillion, up from 58.3% last year.

The year 2025 has been historically challenging for active managers, with only 21% beating their benchmarks year-to-date—the lowest success rate since at least 1999.

Brokerage says one of the reasons why active managers have struggled to beat the market is the Federal Reserve's quantitative easing policies in the aftermath of the 2008 financial crisis.

Despite the overall trend toward passive investing, Jefferies noted that active management maintains its stronghold in style-specific investing. Growth funds remain 74% actively managed, while Value funds stand at 67%. In contrast, just 25% of "Blend" (Core) category assets stay under active management.

Midcaps have the highest percentage of active management, likely due to the lack of good passive alternatives in this segment. In small caps, when ETF flows are strong, active managers tend to struggle. During months with the strongest ETF inflows to small caps, less than 40% of active managers outperform.

Passive ownership varies significantly by sector this year, with Real Estate having the highest passive ownership at 33% of shares outstanding, followed by Utilities at 29.1%. Consumer Staples and Consumer Discretionary have the lowest passive ownership at around 20%.

The continued growth of passive investing raises important questions for all market participants as Jefferies suggests passive's market share could accelerate further given active management's poor performance this year.

However, the persistent preference for active management in Growth and Value styles indicates investors still see value in specialized approaches.

(Ragini Mathur)

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