The Long View

Bryan Armour: Is Index Investing’s Superpower Unstoppable?

Mar 19, 2024

Discover the unstoppable rise of index investing with Bryan Armour, covering active vs. passive funds, market implications, fund fees as return predictors, and global fund flows. Explore the dominance of passive investing, the evolution of Bitcoin ETFs, covered call and dividend-focused ETFs, direct indexing benefits, and manager strategies. Dive into insights on wealth platforms, advisor preferences, model portfolios, active ETF growth, and the future of crypto ETFs.

50:44

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Bryan Armour

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Quick takeaways

Passive investing's cost efficiency and tax advantages drive its dominance in the market.

Shift towards passive fixed income funds highlights suitability in areas with rich information embedded in stock prices.

Deep dives

Passive Strategies Dominate Market Assets

Passive strategies, including index funds and ETFs, now account for the majority of assets in the US market, with approximately 40% market share globally. The success of passive investing can be attributed to its cost efficiency, lower fees, and greater tax efficiency compared to active management. While cap-weighted indexes dominate, allowing opportunities for active investors, the cost story of passive investing remains compelling, posing challenges for active managers to compete effectively.

Introduction

2min

The Shift Towards Passive Investing Dominance

27min

The Evolution of Bitcoin ETFs

7min

Exploring Covered Call ETFs and Dividend-focused ETFs

8min

Exploring Direct Indexing, Best and Worst ETFs, and Manager Strategies

5min

Wrap-up and Information on Podcast Subscription

2min

Our guest this week is our colleague, Bryan Armour, who is director of passive investment strategies research, North America, for Morningstar Research Services. Bryan is also editor of the ETFInvestor newsletter. Before joining Morningstar in 2020, Bryan spent seven years working for Finra, the Financial Industry Regulatory Authority, conducting trade surveillance and investigations specializing in exchange-traded funds. Prior to Finra, he worked for a proprietary trading firm as an options trader at the Chicago Mercantile Exchange. Bryan holds a BA in Economics from the University of Illinois and the Chartered Financial Analyst designation.

Background

Bio

Passive Investing and ETFs

“Index Funds Have Officially Won,” by John Rekenthaler, Morningstar.com, Feb. 13, 2024.

“Active Funds Fell Short of Passive Peers in 2023,” by Bryan Armour, Morningstar.com, March 12, 2024.

“It’s Official: Passive Funds Overtake Active Funds,” by Adam Sabban, Morningstar.com, Jan. 17, 2024.

“ETFs vs. Mutual Funds: The Benefits That Really Matter,” by Bryan Armour, Morningstar.com, Feb. 6, 2024.

“2023 Model Portfolio Landscape,” Morningstar.com.

“Markets Are ‘Fundamentally Broken’ Due to Passive Investing, Says David Einhorn,” by William Watts, marketwatch.com, Feb. 9, 2024.

“How Fund Fees Are the Best Predictor of Returns,” by Russ Kinnel, Morningstar.com, Jan. 12, 2026.

“Cage Match: Traditional Index Funds vs. ETFs,” by Christine Benz and Margaret Giles, Morningstar.com, Oct. 20, 2023.

“Global Fund Flows: 2023 in Review,” Morningstar.com, Feb. 6, 2024.