America's hottest investment product is about to go global

Passive investments, including exchange-traded funds (ETFs) and index funds, currently account for $6 trillion of global assets.

And, according to a report by Moody's Investor Services published on Thursday, that's just the beginning.

Current penetration in US financial markets is only 28.5%, a number that Moody's forecasts will reach over 50% by 2024 at the latest.

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Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., November 7, 2016. REUTERS/Brendan McDermid
Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., November 7, 2016. REUTERS/Brendan McDermid
Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., November 7, 2016. REUTERS/Brendan McDermid
Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., November 7, 2016. REUTERS/Brendan McDermid
Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., November 3, 2016. REUTERS/Brendan McDermid
Pedestrians walk along Wall Street near the New York Stock Exchange (NYSE) in New York, U.S., on Monday, Oct. 31, 2016. U.S. stocks rose from a six-week low amid an increase in deal activity as traders assessed the outlook for the presidential election and interest rates in the world's largest economy. Photographer: Michael Nagle/Bloomberg via Getty Images
NEW YORK, NY - NOVEMBER 01: Traders work on the floor of the New York Stock Exchange (NYSE) on November 1, 2016 in New York City. As Wall Street continues to feel election uncertainty, the Dow Jones closes fell more than 100 points. (Photo by Spencer Platt/Getty Images)
A trader works on the floor of the New York Stock Exchange (NYSE) in New York, U.S., on Friday, Nov. 4, 2016. U.S. stocks fluctuated amid payrolls data that bolstered speculation the economy is strong enough to weather higher interest rates, while investors remained wary before the looming presidential election. Photographer: Michael Nagle/Bloomberg via Getty Images
Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S., on Friday, Nov. 4, 2016. U.S. stocks fluctuated amid payrolls data that bolstered speculation the economy is strong enough to weather higher interest rates, while investors remained wary before the looming presidential election. Photographer: Michael Nagle/Bloomberg via Getty Images
NEW YORK, NY - NOVEMBER 01: Traders work on the floor of the New York Stock Exchange (NYSE) on November 1, 2016 in New York City. As Wall Street continues to feel election uncertainty, the Dow Jones closes fell more than 100 points. (Photo by Spencer Platt/Getty Images)
A trader works on the floor of the New York Stock Exchange (NYSE) in New York, U.S., on Monday, Oct. 31, 2016. U.S. stocks rose from a six-week low amid an increase in deal activity as traders assessed the outlook for the presidential election and interest rates in the world's largest economy. Photographer: Michael Nagle/Bloomberg via Getty Images
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In the Europe and Asia, passive market share is only about 5-15%. The penetration rate is lower in these areas because markets are overall less developed than in the US. Investors are less aware of passive products, sales practices don't necessarily favor the best interest of investors, and corporate governance practices are less shareholder-friendly, according to Moody's.

As global and emerging markets evolve however and corporate governance improves to developed market standards, the potential for global growth in passive funds is huge.

Screen Shot 2017 02 03 at 11.01.34 AMReuters

"Although we believe that US passive market share has much room for potential growth, the potential overseas is even greater," according to the Moody's team led by Stephen Tu. "We expect passive adoption in the EU and Asia to follow a pattern similar to the US, provided that global transparency and communication improves and that global financial markets continue to mature and become more investor friendly." Initiatives such as

Initiatives such as MiFid II in Europe aim to promote transparency of fees, which will lead to greater usage of lower-cost passive options.

Over time, Moody's expects active management to underperform passive across all major geographies, developed and emerging.

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