To indicize means to provide, in passive form, a strategy formerly available only via active management. Until the early 1970s, there were no index funds; all assets were managed actively. The shift of assets from active to passive management is one of the most important trends in modern financial history. Our recent Annual Survey of Indexed Assets shows assets tracking the S&P 500^® amounted to USD 13 trillion as of December 2024.¹

One of the reasons for the popularity of indexing is its low cost relative to active management. As indexing has grown, investors have benefited substantially by saving on fees. We can estimate the fee savings by multiplying the difference between the average expense ratios of active and index equity mutual funds² by the total value of indexed assets for The 500™, the S&P MidCap 400^® and the S&P SmallCap 600^®.

When we aggregate the results, we observe that the savings in management fees in 2024 was USD 52 billion (see Exhibit 1), an increase of USD 12 billion from the USD 40 billion in savings observed in 2023. Of course, this USD 52 billion estimate understates the full cost savings of the index industry, since it encompasses indices only from S&P Dow Jones Indices (and not even all of those).

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Obviously, the cost savings generated by the shift from active to passive management would be inconsequential if market participants lost more in performance shortfalls than they gained in reduced fees. However, as readers of our SPIVA^® reports are well aware, that’s decidedly not the case: most active managers have underperformed most of the time. Looking across our more than 24 years of history, large-cap active managers posted majority outperformance in only three years. Long-term underperformance has been even worse, with 91% of all large-cap U.S. managers lagging The 500 over the 20 years ending in June 2025. The rise of passive management has been a notable consequence of active performance shortfalls.

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The lives of active managers have been further challenged by the indicization of markets, as the movement of assets to passive alternatives can cause the least capable active managers to lose the most assets and the quality of the surviving active managers to rise. As a result, the competition for outperformance becomes tougher,³ consequently raising the bar for surviving managers.

Advances in passive management have made it easier for investors to access efficient and inexpensive strategies spanning across the capitalization spectrum, geographies, sectors, factors and themes, compounding the benefits for numerous market participants globally.

¹ S&P Dow Jones Indices Annual Survey of Assets. S&P Dow Jones Indices, 2024

² See Ellis, Charles D., “The Loser’s Game,” The Financial Analysts Journal, Vol. 31, No.4, Jul/August 1975, pp. 19-26. New York: Financial Analysts Federation.

³ Expense ratios sourced from Investment Company Institute, 2025 Investment Company Fact Book.

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