The Problem with Passive

Published on
August 26th, 2019
Duration
7 minutes

The Problem with Passive

The One Thing ·
Featuring AK

Published on: August 26th, 2019 • Duration: 7 minutes

Passive investments have seen a huge surge in assets and interest over the past decade. But are significant risks now being ignored? AK takes a look.

Comments

Transcript

  • ZY
    ZHENG Y.
    29 August 2019 @ 00:29
    Well done on the “I talk to you next week joke” haha
  • JW
    Jake W.
    27 August 2019 @ 21:27
    So, my question is, and I would assume that this applies for bond index as well, but do equity indices not hold the underlying assets, and do not simply act as a derivative of its aggregated value?
    • EA
      Emma A.
      27 August 2019 @ 23:30
      Index funds hold assets, like any other fund. You can chart indices that are based on aggregated value, but you can't trade them.
    • JW
      Jake W.
      28 August 2019 @ 15:16
      The only way to hold an indices is to hold the ETF (SPY for S&P, QQQ for Nasdaq, etc.) which should hold the underlying assets. So a large outflow in the ETF would cause a diluted outflow in each underlying asset. That said, the move would be impartial to the quality of the firm, so some babies would get thrown out with the bathwater, so to speak, creating some opportunity from a value standpoint. AK states there would be scramble for the underlying assets, which may or may not be liquid. This might apply to bonds, which cannot be easily traded minute-by-minute, but equity index ETFs should hold the underlying asset. I could imagine spreads widening as equity prices fall and investors try to avoid catching a falling knife, thus there could exist a liquidity mismatch.
  • Hv
    Hannah v.
    27 August 2019 @ 01:26
    Good job AK. It’s super helpful when several main points of the longer interviews are stripped down and amalgamated. I listened to HK’s talk 4x, knowing he was saying something crutial. The lasagna nailed it.
  • GF
    George F.
    26 August 2019 @ 15:59
    OK, but when you criticize ETFs maybe you should recommend some active funds.
  • SW
    Scott W.
    26 August 2019 @ 14:36
    This was a very good distillation of recent presentations; I had an aha moment that should have occurred while watching Krishnan's piece last week. Thanks AK!