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Passive reign

The first quarter of the 21st century belongs to the ETF. Within passive strategies, the advantages of the ETF in terms of intraday liquidity and tax efficiency (dual listing) has pushed the AUM Compounded Annual Growth Rate to 25% in the first 12 years and 17% in the second 12 years, according to the chart below. The irony is that the proliferation of ETFs invites investors and asset allocators to pursue an active approach to investments through the use of passive vehicles like ETFs. Embedded in that irony, there is a degree of overconfidence, where allocators dismiss the advantages and proven track records of professional active managers, only to pursue it themselves. Central bank interventions and money printing have created the perfect context for passive strategies to shine: low volatility and high liquidity which has created long directional bull markets. For the next 10 years the projection points to a 10% growth in AUMs. Will the trend continue?

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