The Passive vs. Active Chart Everyone Misreads

The article argues that a common chart showing cumulative net flows into US-domiciled equity funds since 2006 is often misread as proof that passive investing has decisively beaten active management. The author says the chart groups funds by product structure (ETF vs mutual fund), which masks behavior: many ETFs that track indexes are used to express active sector, factor or thematic bets, while a share of active mutual funds are effectively closet indexers. The piece concludes that low-cost ETFs have displaced high-cost mutual funds, but true broad-market, buy-and-hold passive is smaller than the chart implies; other channels (hedge funds, SMAs, direct ownership) are omitted.