Scott Opsal, Leuthold Group's director of investment strategies, said one legacy of the passive investing movement is how it allows clients to choose their own focus areas, such as through buying thematic ETFs that track particular sectors. "Portfolio control is a huge advantage of the passive wave," he told me.
Despite the poster's sentiments, Opsal said Leuthold actually adopted some of the theories of passive management such as by evaluating stocks as members of different industries.
The phrase "UnAmerican," Opsal said, likely underscored the common criticism that passive funds encouraged people to stop thinking about their money.
"I imagine one of the key motivations behind Steve's thought-provoking poster was that the passive fund movement was promoting the notion of investing without thinking," Opsal said. "The belief that a given asset is a good investment at any price and under any market condition is foolishness, and a theory that sends that message is doing a disservice to the investing public. I suspect Steve’s goal was to reinforce that prices matter and economic conditions matter, and a wise investor should be regularly and actively evaluating their portfolios from that perspective."
BROADER PERSPECTIVE
As long as we're talking index fund impact, an important part of their growth has been their influence on how companies are run. Paul Washington, CEO of the Society for Corporate Governance, which represents corporate secretaries and others in the issuer community, said big index fund leaders carry the most influence among shareholders since they have the broadest perspective and cannot buy and sell stocks based on feelings, analysis or the "animal spirits" cited by economist John Maynard Keynes.
"Conversations with the index funds can be the most valuable inputs you get from investors," Washington said. "They're aware of the practices at other companies and they also have views on systemic risks and opportunities. They're not in and out of your stock, so they have the benefit of continuity."
In a recent survey, about 25% of responding companies said regulatory changes last year made it more challenging for company leaders to speak with institutional investors, he said. The changes pushed by securities regulators nominated by U.S. President Donald Trump have primarily affected index funds.
(Reporting by Ross Kerber in Boston; Editing by Matthew Lewis)
((ross.kerber@thomsonreuters.com; (617) 412 0093;))
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