A First: U.S. Passive Matches Active AUM

As of the end of April, assets in passive domestic stock funds reached the level of those held by active managers–$4.3 trillion. This according to an article in Institutional Investor. “According to Morningstar,” the article reports, “parity between active and passive has been the inevitable result of twelve years of relentless outflows from active funds coupled with a steady flow into passive assets.” The trend, the article says, represents a signal that the industry has… Read More

Higher Returns on Fewer Stocks: Vanguard Debunks “Best Ideas” Portfolio Philosophy

A recent study by a team at Vanguard contradicts the idea adopted by many investors and financial professionals that “broadly diversified portfolios are inferior to concentrated portfolios made up of a manager’s ‘best ideas.’ “ While the underlying premise might make sense—that performance of a manager’s most promising holdings would outperform those with a weaker outlook—the Vanguard paper makes an extensive and detailed case as to why the argument doesn’t hold up. Here are some… Read More

Zweig and Grant on the Pressure to Go Passive

On a recent episode of WealthTrack, Consuelo Mack interviewed financial journalists Jason Zweig and James Grant regarding the lagging performance of value stocks and the pressure to move to passive investing. Here are some highlights: According to Zweig, “The real utility of a value investing framework is that it helps modulate your emotions as a value investor.” Grant argues that the current cycle is likely to end badly due to: (1) the corruption of accounting… Read More

Passive Investing Could Cause Market Trouble

“A fundamental shift in market structure towards rules-based, passive investing over the past decade means a lot of trading is no longer based on fundamentals” and the shift could lead to a global market downturn, according to a recent article in the Financial Times. The concern has risen to the Fed, who will address the topic at this year’s economic symposium in Jackson Hole. Passive investments ignore fundamentals, the article says, citing the example of… Read More

Some Thoughts on Howard Marks’ Most Recent Memo

By Jack Forehand (@practicalquant) —   Howard Marks’ memos provide some of the deepest and most thought provoking insights in the investing world today. They are on par with Warren Buffett’s annual letters as one of the few must reads in investing today. Marks just recently posted a new memo, and the topics he covered were very close to home for me as someone who believes in quantitative and factor-based investment strategies.  The memo was titled Investing… Read More

Swedroe Addresses Indexing Concerns

In a recent article for ETF.com, Larry Swedroe breaks down concerns regarding passive investing, including the notion that it has “become such a force that the market’s price discovery function is no longer working properly.” Swedroe, director of research for the BAM Alliance, makes the following points: A recent Vanguard study showed that, as of October 2017, $10 trillion was invested in index funds. “While a large figure,” Swedroe writes, “it represents less than 20%… Read More

Is Index Investing Still Passive?

Passive investing has grown to the point where “putting your money in an index-tracking fund is a move requiring an active decision,” say researchers at Sanford C Bernstein & Co. This according to a recent article in Bloomberg. The researchers reported: “Ultimately, this brings us to a bigger point, which is that there is, really, no such thing as passive investing.” The researchers based their findings on “the millions of indexes in existence, which far… Read More

Harvard Alumni Advise Endowment to Buy Index Funds

According to some Harvard University alumni– who have criticized the school’s endowment fund for underperforming the S&P 500 over the last decade—the school should use the savings it gets by moving half of its endowment fund to index funds to cover the cost of a new tax to be faced by some of the country’s wealthiest schools. This according to a recent article in Bloomberg. The suggestion by members of Harvard’s class of 1969 reads… Read More

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