Here's the Moody's press release: https://www.moodys.com/research/Moodys-Passive-investing-to-overtake-active-in-just-four-to--PR_361541
Has anyone finagled a copy of the actual report? Moody's is asking 750 USD for a copy. (No way I'm paying some analysts this kind of money for their thoughts!)
Their definitions in the press release aren't completely clear. My guess is that they are comparing non-index mutual funds to index funds and ETFs. From google, I found that the world-wide stock market capitalization is on the order of 70T USD. The Moody's press release claims that the 6T USD of passively managed funds accounts for 28.5% of assets under management. 28.5% of 70T is about 20T, so I think they are omitting pension funds and other large scale investors.
Fascinating stuff.
I do sometimes wonder what the long-term effect of the rise of passive investing will be. For example, index funds are much more popular in the US than the rest of the world. The most popular index is the S&P 500, where investment is allocated due to size, not performance. The S&P 500 has absolutely skyrocketed since the recession, which coincides with the rise of index funds.
In other words, the S&P 500 gets a huge constant flow of investment around the clock, for no other reason than being large. Investment has historically been allocated on earnings and perceived future earnings.
It seems to be a reasonable conclusion that if these trends continue, passive investing is going to create a bubble in the most popular indexes. With that said, even if this is correct, proper diversification limits the risk. I have seen some allocations on this board of over half of invested assets in the S&P 500, I certainly think this should be considered for folks in that camp.
Disclaimer: I'm not suggesting stock picking, just thinking through a line of thought.