Asset managers’ inadequate response to the riseof cheap, index-tracking funds has left them vulnerable to a newassault, this time from technology giants such as PayPal HoldingsInc. and Amazon.com Inc., Moody’s Investors Service said in areport.

The industry is “vulnerable to competition fromtechnology-enabled new entrants, particularly with regards todistribution,” Stephen Tu, a senior analyst at the ratings companyin New York, wrote in the report published Tuesday.

Relatively low barriers to entry and pressure on fees have lefttraditional money managers weakened, hewrote.

Traditional stock-pickers have been battered bycompetition from cheaper passive funds and the rising cost ofregulation, including the MiFID II rules that come into force onJan. 3. These combined threats have already sparked a wave ofconsolidation in the industry as firms seek to bulk up, with dealssuch as Standard Life Plc’s recent tie-up with Aberdeen AssetManagement Plc and the merger earlier this year that created JanusHenderson Group Plc.

Moody’s report outlines a fresh threat. While offering fundproducts would directly benefit digital-payment companies such asPayPal, other technology giants such as Amazon and Apple Inc. areunlikely to enter asset management solely to attract managementfees, Tu wrote.

Rather, they would see it as an opportunity “to facilitate datacollection and to keep clients within their company’secosystem.”

Moody’s said some of asset managers’ market share has alreadybeen ceded to robo-advisers including Wealthfront Inc. -- which itsaid has announced its own mutual fund -- Acorns Grow Inc. andBetterment LLC.

An affiliate of China’s Alibaba Group launched a money-marketfund for its digital-payment system in 2013 that has since grown tobecome the largest in the world, Tu wrote.

BlackRock Inc. is among the few companies that has responded tothe threat, by investing in technology, making its fundamentalinvesting more quantitative and carrying out acquisitions, theanalyst wrote.

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