WARREN BUFFETT built a fortune of nearly US$60 billion from astute stock picking, but when the 83-year-old dies, the vast majority of the money he leaves his wife will be parked in a fund that simply moves in step with an index.

    The afterlife plans of the man nicknamed the Sage of Omaha, revealed in a letter to his investors earlier this year, underline a sea change afoot in the investment industry.

    Fed up with high fees and poor performance, investors are increasingly shunning active fund managers who promise to beat the stock market in favor of cheaper, passive funds, which simply track it.

    Such funds account for about a quarter of the money invested in the U.K. stock market, up from 15 percent a decade ago. The switch is accelerating, with index funds attracting inflows of US$3 billion in the first half of this year, while active Britain-focused funds saw US$4 billion leave, a Reuters analysis of data from fund tracker Lipper showed.

    The passive wind blows even stronger in the United States due to years of underperformance by active funds, which has led to institutions parking half of their equity allocations in index trackers, according to data from State Street.

    And the shift is spreading to other parts of the world, putting at risk revenues earned by money managers, banks and brokerages that service funds and more than half a million jobs related to fund management in Europe alone.

    Industry experts expect Europe, where active mutual funds are still the dominant force, making up 80 percent of allocations, to move more in sync with the United States, following the lead of Britain, the region’s top capital market.

    “It’s only a surprise that investors have taken this long to realize that the puffery around long-term outperformance, star managers, etc., is just that ... puffery,” said Peter Douglas, founder of investment consultancy GFIA.

    Patchy economic recovery since the 2008 crisis and increased regulation, such as a proposed clampdown on a fund’s activities in times of a crisis to ensure stability, have hampered active managers’ ability to outperform.

    Weak gains have already made it harder to justify fees that are sometimes 10 times or more than the cost of a passive fund, which in the case of the most liquid exchange-traded funds can be less than 0.1 percent on a headline level, before factoring in brokerage, transaction and tax costs.(SD-Agencies)