Tag Archives: passive management

Capitalization and Its Discontents

Last week, readers of the Financial Times were regaled by suggestions that capitalization-weighted index funds were “hugely biased,” “undiversified,” and “too trusting of the market’s judgment on a handful of very large stocks.”  Criticisms of cap weighting aren’t new, of course, and at least in the near term seem not to have been very effective Read more […]

Market Agnosticism

This weekend’s Financial Times brought John Authers’ provocative article on the frequency of financial crises.  Along the way, John gives us some excellent advice: “We should all work on the assumption that we do not know what will happen next.” John’s view of crisis prediction applies equally to the quotidian work of investment management.  Since we don’t Read more […]

Confusing Means and Ends

This morning’s Wall Street Journal informs us that the growth of exchange-traded funds has “propelled” this year’s surge in equity prices.  “Booming demand for passive investments is making exchange-traded funds an increasingly crucial driver of share prices….Surging demand for ETFs this year has to an unprecedented extent helped fuel the latest leg higher for the Read more […]

Three Takeaways From the SPIVA U.S. Year-End 2016 Scorecard

S&P Dow Jones has been reporting the SPIVA® U.S. Scorecard for 15 years now.  Over the years, it has helped contribute to the active versus passive debate in a systematic and objective manner.  While some market segments or styles of active management can be cyclical in their ability to outperform, the secular trends in reported Read more […]

The Wrong Diagnosis

This morning’s Wall Street Journal described how “a $1.4 billion ETF gold rush” supposedly has disturbed the pricing of mining stocks around the world.  $1.4 billion turns out to be the incremental cash flow into a single exchange-traded fund designed to track an index of the gold mining industry, including some relatively small-capitalization companies.  These Read more […]

Visualizing Factor Exposures

Measuring the away-from-benchmark exposures of active portfolios (or “smart beta” indices) is not inherently complicated.  To what degree, for example, is a portfolio cheaper than its benchmark, or more tilted toward high quality stocks?  Practitioners typically approach the question in one of several ways: Calculating weighted average differences – e.g., the yield on my portfolio is Read more […]

The Making of a Passivist

I have few memories of my school French, but one of the fondest is of Moliere’s Monsieur Jourdain, who was delighted to learn in middle age that he had been speaking prose for the last 40 years.  Similarly, I did not realize until recently that I was a “passivist,” as the Wall Street Journal has now anointed the Read more […]

The Worst of Both Worlds

For active managers, investment results are partly a function of skill and partly a function of the environment in which that skill is exercised.  Even perfect foresight has only conditional value.  Imagine, for example, a manager who can always identify the top quintile of performers in a given market.  If the top quintile outperforms the index as Read more […]

An Unusual Thing Happened In August: Only Energy Rose

For the first time since March 2008, energy was the only positive sector in the S&P GSCI for the month in Aug.  Energy gained 6.2%, while agriculture, industrial metals, livestock and precious metals lost 5.7%, 3.2%, 0.4% and -4.0%, respectively.  Not only is this the first month in over 8 years for energy to rise alone, but it has only Read more […]

Worse Than Marxism?

The investment community was bombarded last week with a paper arguing that passive investing is “worse than Marxism.”  That any putatively-serious observer can compare an investment strategy, even one he doesn’t like, with a political ideology responsible for the deaths of millions boggles the imagination, but maybe I’m just too sensitive.  The paper’s argument seems Read more […]