Combining Active and Passive Investing Can “Smooth the Ride”

A “partnership” of both active and passive investing can help smooth out some rough patches in portfolio performance, according to a recent Vanguard article. “The addition of a reliable investment partner—a broadly diversified, passively managed investment—can theoretically narrow the range of outcomes, helping you stick with a plan that offers the potential for outperformance while limiting the chances of significant underperformance.” Even the most skilled active fund managers, the article points out, will suffer periods… Read More

Evaluating Luck or Skill in a Stock Picker

Investors choose fund managers based on their performance, says a recent article in The Wall Street Journal, but being able to evaluate stock picking skill is extremely tough. This is the argument presented by Elm Partners co-founder and chief executive Victor Haghani, an advocate of index investing who asserts that the degree of confidence people have in their ability to pick “super-talented” fund managers is “surprising.” Haghani, who co-founded the infamously defunct hedge fund Long… Read More

LTCM Partner Advocates for Indexing

Victor Hahgani, a founding partner of long-defunct Long-Term Capital Management, believes you should “think twice before trying to beat the market,” according to a recent article in The Wall Street Journal. Since 2011, Haghani has run Elm Partners Management LLC, which now manages approximately $550 million in assets, and has become something of an advocate for passive investing. “Using a simple algorithm,” the article explains, “the firm takes into account valuations and momentum to invest in… Read More

Asness of AQR Says Passive Growth Is Good for Industry

Cliff Asness, co-founder of AQR Capital Management, thinks the flow of money into passive investing has been a positive for the industry, according to a recent Bloomberg article. Per the article, Asness believes that active managers “have historically overcharged for scant returns and the shift toward questioning whether high fees are deserved is a healthy change.” The managing principal of Greenwich, Connecticut-based AQR (which oversees $208 billion in assets) argues that there are too many active… Read More

Shift to Passive Investing May Not Influence Stocks Like Some Think

By Jack M. Forehand —  The massive move investors have made to passive vehicles over the past few years has been truly astounding. With most active managers underperforming their benchmarks by a wide margin recently and over longer periods of time, and charging higher fees to do it, investors have been moving their money out of active and into passive in droves. A CNBC article in April sums up the magnitude of the move: “Flows… Read More

Buffett Wins his 10-Year, Million-Dollar Wager

Warren Buffett is the winner in the bet he made with finance professionals back in 2007 that, over the ten years between January 1, 2008 and December 31, 2017, the S&P 500 would outperform a portfolio of funds of hedge funds (when performance is measured on a basis net of fees, costs, and all expenses). This according to an article in this week’s AEI. Ted Seides, co-manager of Protégé Partners, was the only fund manager to… Read More

GMO Paper Says Indexing the S&P 500 is Risky

A comprehensive  white paper published by GMO’s Matt Kadnar and James Montier in August—arguing against a predominantly index-focused investment strategy–was condensed in a recent MarketWatch article. The article quotes the authors: “A decision to allocate to a passive S&P 500 index is to say that you are ignoring what we believe is the most important determinant of long-term returns: valuation. At this point, you are no longer entitled to refer to yourself as an investor.… Read More

BlackRock’s Ang on Factor Investing

Andrew Ang, who runs factor investing at BlackRock, argues that factor investing remains “the language of investment excellence” despite naysaying by the likes of Vanguard’s Jack Bogle and smart-beta pioneer Rob Arnott of Research Affiliates. This according to a recent article in Forbes. Black Rock, the article reports, has been “firing human stock pickers and betting that factor investing is the future of the struggling active-investment-management business.” It adds that Ang expects smart-beta ETFs to… Read More

An Argument Against Passive Investing

As clients move dollars to passively managed funds, investment management firm Grantham Mayo van Otterloo has “remained bearish as markets have lifted valuations,” according to an article in Barron’s. But James Montier, a member of the firm’s asset-allocation committee who was interviewed for the article, “often challenges the assumptions of his boss [Jeremy Grantham] and others around him.” Following are some of Montier’s comments from the interview: Passive investing: “You cannot describe yourself as an… Read More

Paul Singer on the Threat of Passive Investing

The hedge fund manager and founder of Elliott Management Corp. argues that passive strategies don’t represent investing per se and that “index fund providers don’t have incentive to push companies to change for the better and create shareholder value.” This according to a recent Bloomberg article. In his recent second-quarter letter, Singer refers to passive investing’s “apparent stability” as “unsustainable and brittle” and argues that “passive investing is in danger of devouring capitalism.” He asserts… Read More