Vanguard Dismisses Criticism of Passive Growth in Europe

Vanguard Dismisses Criticism of Passive Growth in Europe

Investing in U.S. equities is an "asset allocation decision."

Reviewed by: Staff
Edited by: James Rubin

Vanguard has hit back at criticism of the rise of passives channeling investment away from European markets, labelling investors’ choice to invest in U.S. equities an “asset allocation decision.”

The passive giant said investors see the U.S. market as “attractive” and said decisions to allocate through index funds and ETFs are “more nuanced than simply buying a total market index fund.”

In recent weeks, asset managers and policymakers in Europe have bemoaned the dominance of U.S. equities in portfolios—accounting for 70% of the MSCI World—pushing investment away from the European Union.

European Fund and Asset Management Association (EFAMA) president Sandro Pierri, the French Association of Financial Management (AFG) and former Italian prime minister Enrico Letta have all called for a "Savings and Investment Union" to channel savings into the EU economy.

However, Vanguard said fund selectors are increasingly using low-cost index ETFs to “actively express a particular view”.

“When investors do choose to implement a particular asset allocation with index funds or ETFs, it is important to remember the picture is more nuanced than simply buying a total market index fund,” Vanguard said.

“Investors are using index funds and ETFs actively to express a particular view and consequently fine-tune their portfolio asset allocation to meet their investment goals.”

Label for Savings Products?

The proposals to relaunch the EU’s capital markets would involve “mobilizing private capital on a large scale” to finance the continent’s transition.

It could mean the creation of a European label for savings products invested in the EU and facilitating the supervision of asset managers in several European jurisdictions.

BNP Paribas Asset Management CEO Pierri said active ETFs could help “bridge the gap” between passive and active, adding it represents a “significant opportunity” for European asset managers.

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Theo Andrew joined ETF Stream as a senior reporter in September 2021. He has over four years of investment writing experience spanning pensions and retail investments, most recently at Citywire, where he was a senior reporter covering environmental, social and governance investing.