The European Passive Fund Industry: A Darwinian Perspective

This article documents and evaluates changes in the European passive fund industry ecosystem since the inception of ETFs. The empirically examines the comparison between ETFs and mutual funds, exploring how their competition has influenced the passive fund landscape. Specifically, he differentiates between ETFs and mutual funds listed in Ireland and Luxembourg, as well as those tracking broad versus specialized indices. The analysis covers fund costs, alphas, flows, and tracking errors across these various subuniverses. Notably, the author focuses on competitive dynamics and investigates how legacy funds adapt when directly competing with other fund types. Furthermore, the insights lead us to speculate on how the emergence of active ETFs will impact the broader fund industry.