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 that in passive investing, small equity holders have “little-to-no voice and no realistic possibility of banding together, while the biggest shareholders have no (repeat, no) […]

Leading Economist Says Stocks Can Continue to Climb

Although U.S. stock valuations are stretched, economist and leading authority on behavior finance Andrew Lo says this can  continue for years due to growing demand for equities by retirement funds,” says a recent article in MarketWatch. Lo is director of the MIT Laboratory for Financial Engineering who also helped establish the new Office of Financial Research under the U.S. Treasury Department. In a recent interview, he asserted, “Having a large number of passive investors buying and holding index funds for the next 20 years will cause the market’s value to continue to rise.” But the issue of whether the stock […]

Shiller Says There Are No Genius Investors in the Long Run

While some investing approaches can work for long periods of time, over the long run, “without deep expertise, it makes little sense to veer much from a simple market portfolio—one that seeks to match the overall performance of the market, and not beat it.” This according to Yale professor Robert Shiller in a recent New York Times article. Using the example of Warren Buffett’s investing prowess, Shiller underscores that investors who have attempted to mirror his strategy don’t “understand exactly how he makes his decisions, they don’t have his edge,” and, he adds, “must come to the party late and […]

Vanguard Has Seen More Inflows than All Competitors Combined

In the last three calendar years, investors have poured $823 billion into low-cost index and ETF funds managed by Vanguard, about 8.5 times as much as all of its competitors combined, according to a recent New York Times article. The article quotes Morningstar’s Alina Lamy, who says this type of flow is unprecedented. “Since the crisis,” she says, “investors have been saying, ‘I may not be able to control the market, but I can control how much I pay in mutual fund expenses.’” The phenomenon, coined the “Vanguard effect,” has “come as an existential shock to a mutual industry that […]

Yale’s Actively Managed Fund Performance Waning

The majority of the Yale University endowment fund is invested with active managers but, if you compare its returns to low-cost active strategies rather than to passive indices, “Yale’s active managers don’t look so special,” writes Bloomberg’s Nir Kaissar. In its recently released 2016 annual report, the article says the esteemed university’s endowment rebutted “fee bashers” by arguing, “The important metric is net returns, not gross fees.” Kaissar points out, however, that Yale’s attempt to substantiate high fees in the name of net returns is no longer valid.  While low-cost “smart-beta” funds haven’t been around long enough to allow a […]