united kingdomen
The Dark Side of Passive Investing

The Dark Side of Passive Investing

15-11-2014 | Research
Passive investing ranks among the most successful innovations of modern finance. Yet there is also another side to passive investing, which the discussion often seems to ignore.
  • David Blitz
    David
    Blitz
    Head of Quant Research, Robeco

Speed read

  • Passive management is an appealing concept
  • But this approach also comes with serious flaws
  • Active investors can benefit from factor premiums
Stay informed on Quant investing with monthly mail updates
Stay informed on Quant investing with monthly mail updates
Subscribe

Should passive investing be encouraged, for the time being, or are we perhaps already at a point where discouraging passive investing would actually be more appropriate? In this article,1 we argue that, at the very least, the proponents of passive investing should seriously address the broader implications of their approach.

First, they should acknowledge that large-scale active investing is a prerequisite for passive investing, as well as for an efficient allocation of capital. Second, they should describe how large-scale passive and large-scale active investing can coexist in a macro-stable equilibrium. Third, they should identify who should invest actively in this equilibrium, as well as their own roles and responsibilities.

These considerations might be called the sustainability dimension of passive investing. Interestingly, investors increasingly demand that the companies in which they invest adhere to sustainable business models. Perhaps the sustainability of their own investment philosophy ought to be put to at least the same level of scrutiny.

1Blitz, D.C., 2014, ‘The dark side of passive investing’, The Journal of Portfolio Management.

Disclaimer:

This report is not available for users from countries where the offering of foreign financial services is not permitted, such as US Persons.

Your details are not shared with third parties. This information is exclusively intended for professional investors. All requests are checked.

Logo

Disclaimer

Please read this important information before proceeding further. It contains legal and regulatory notices relevant to the information contained on this website.

The information contained in the Website is NOT FOR RETAIL CLIENTS - The information contained in the Website is solely intended for professional investors, defined as investors which (1) qualify as professional clients within the meaning of the Markets in Financial Instruments Directive (MiFID), (2) have requested to be treated as professional clients within the meaning of the MiFID or (3) are authorized to receive such information under any other applicable laws. The value of the investments may fluctuate. Past performance is no guarantee of future results. Investors may not get back the amount originally invested. Neither Robeco Institutional Asset Management B.V. nor any of its affiliates guarantees the performance or the future returns of any investments. If the currency in which the past performance is displayed differs from the currency of the country in which you reside, then you should be aware that due to exchange rate fluctuations the performance shown may increase or decrease if converted into your local currency.

In the UK, Robeco Institutional Asset Management B.V. (“ROBECO”) only markets its funds to institutional clients and professional investors. Private investors seeking information about ROBECO should visit our corporate website www.robeco.com or contact their financial adviser. ROBECO will not be liable for any damages or losses suffered by private investors accessing these areas.

In the UK, ROBECO Funds has marketing approval for the funds listed on this website, all of which are UCITS funds. ROBECO is authorized by the AFM and subject to limited regulation by the Financial Conduct Authority. Details about the extent of our regulation by the Financial Conduct Authority are available from us on request.

Many of the protections provided by the United Kingdom regulatory framework may not apply to investments in ROBECO Funds, including access to the Financial Services Compensation Scheme and the Financial Ombudsman Service. No representation, warranty or undertaking is given as to the accuracy or completeness of the information on this website.

If you are not an institutional client or professional investor you should therefore not proceed. By proceeding please note that we will be treating you as a professional client for regulatory purposes and you agree to be bound by our terms and conditions.

If you do not accept these terms and conditions, as well as the terms of use of the website, please do not continue to use or access any pages on this website.

I Disagree