12 Sep TWO HEADLINES FROM BLOOMBERG
Within five minutes yesterday Bloomberg posted two headlines. The first was “Assets in passive mutual funds now exceed assets in active managed mutual funds.” The second headline was value/small caps are again outperforming momentum for the third consecutive day, reversing the earlier day trend. As noted earlier in the week Monday was the greatest disparity between the two in 10 years.
Value has greatly lagged growth/momentum for at least 10 years and August was the worst month for value in at least 20 years according to the financial website FINSUM.
Value/small cap is synonymous to active management. Momentum is synonymous to passive management.
It is a well know axiom on Wall Street that once everyone is doing the same thing, a significant transition could be immediately at hand.
Passive investing requires no macroeconomic, geopolitical or individual security analysis. By default it is capitalization driven and the big get bigger and the small get smaller. Last week a FINRA official stated on CNBC price discovery can be lacking because the current environment. In other words, passive investors may be paying too much or being paid too little for a wide band of securities. Wow!
Passive investing was once viewed as one of the various alternatives. Today it is the market that has perhaps created an unforeseen systemic risk.
Perhaps the correct question to ask will this week be significant, viewed as the high level mark of passive investing, equivalent to the high water mark of the Confederacy was Picket’s Charge? Only history will answer this question.
Little attention was focused on the inflation data which exceeded expectations in all dimensions.
Last night the foreign markets were mixed. London was down 0.03%, Paris down 0.04% and Frankfurt up 0.12%. China was up 0.75%, Japan up 0.75% and Hang Sang down 0.26%.