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 out of actively managed U.S. equity mutual funds leaped to $264.5 billion in 2016, while flows into passive index funds and ETFs were $236.1 billion, […]

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 accept Buffett’s challenge. The following results are outlined in Berkshire’s 2016 letter to shareholders: “Buffett’s index investment bet is so far ahead,” the article states, […]

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. You may call yourself a speculator, but not an investor.” Given the market’s stretched valuations, the paper explains, passive investing prevents an investor from underweighting […]

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 reach $1 trillion by 2020, and has focused his firm’s offerings on six factors; small-size, value dividend yield, momentum and quality (for return enhancement), and […]

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 investor if you are going passive. You are welcome to call yourself a speculator, but you honestly can’t say you care about expected returns if […]