Passive managers reject criticism [+ WHITE PAPER]
Simon O’Grady, Kiwi Wealth chief investment officer, said passive management was problematic because it had an in-built tendency to buy more and more of the most expensive shares as they rose in value.
“With market conditions becoming increasingly volatile, the risk of a downturn means that passive investors are likely to be carrying higher risk. Of concern is massive inflows of money via passive funds into mega cap stocks.
“Many of these stocks are now quite richly valued and face the added risk of flows drying up, yet passive investors are still buying at a pace.
“Only active managers make an effort to assess the value of stocks and whether they’re worth buying. That’s why we’re constantly deliberating and considering our positions.”
But Dean Anderson, who now heads index investment platform Kernel, said index funds would only invest proportionately to the value of the company and would not drive its value higher.
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