Many of these have never been tested by a severe market downturn. Now they have. All a passive fund can do when the market it’s tracking crashes is fall with it, which is enough to send many people running for the exit. Plenty of active funds follow markets downwards too, but in March close to E22bn flowed out of European and UK ETFs, and in April investors in the UK put almost twice as much money into active funds as they did into traditional trackers, reflecting the view that in volatile markets active managers should be better placed to protect their money and deliver gains.
And volatile markets and tough times ahead are what many people expect. The recovery was fast, but can it last given the carnage caused by coronavirus? The abnormal levels of support required by the market – hundreds of billions in QE, tens of billions in Bank of England pandemic loans, billions in equity raisings on top of the hundreds of billions of debt carried by plcs (all in the UK alone) – underline just how far we are from 'normal' conditions.