Kevin Duffy on the passive bubble

Over [the past 10 years], a staggering $6.0 trillion has poured into passively managed funds, with $2.3 trillion pulled from active funds.

~ Kevin Duffy, "Fade to Black," The Coffee Can Portfolio, p. 10, October 22, 2024

Peter Atwater on brain drain into politics as contrary indicator

I think it's really interesting that you're seeing an influx of asset managers, a.k.a.  BlackRock employees into the Biden White House team.  It reminds me, if we go back to the '60s - you had [Robert] McNamara at Ford going into the political space at the top of [the Go-Go '60s].  You've had Gary Cohn and the [investment] banking folks, [Henry] Paulson, [Steve] Mnuchin from the private equity space.  I think it's like hosting the Olympics.  You only host the Olympics at the very top.  You only go into political life at the very top.

~ Peter Atwater, "Super Terrific Happy Hour Ep. 8 - Peter Atwater: Our Sentimental Friend," The Grant Williams Podcast, 56:00 mark, December 13, 2020

Mike Green on how passive investing is distorting capital allocation

That is actually a very important role: taking money from bad companies and giving it to good companies is a critical role in the capitalist system, effectively allowing those who are efficient and intelligent allocators of capital, to give money to management teams that have good prospects in terms of generating future wealth.  What we've created now is a distortion that's a funhouse mirror effect, right?  Where we've presumed everyone is doing this for us where it is a fool's game to do it for ourselves.

~ Mike Green, "Why The Rise of Passive Investing Might Be Distorting The Market," Odd Lots podcast with Joe Weisenthal and Tracy Alloway, January 23, 2020

Mark Urquhart on passive investing

The notion that equity indexes are somehow risk-free states has to my mind always been a dangerous fallacy which has been amplified by the rise of passive investing. Actually, all three of the significant market crises which my career has contained — technology, media and telecoms (TMT), the financial crisis and now the coronavirus — have been linked by so much damage being done to particular parts of the index that it demolishes the thesis that index investing can diversify away such risk.

~ Mark Urquhart, money manager at Baillie Gifford in Edinburgh, Scotland, "Opinion: The hidden risk in your S&P 500 index fund," MarketWatch.com, July 17, 2020

Kevin Duffy on the passive bubble vs. active anti-bubble

Besides bonds, there is plenty of herding into private investments by the wealthy, especially venture capital and private equity.  Away from the top 1%, the obvious crowding is into passive investing. After a decade when U.S. large cap stocks outperformed most active managers, the typical investor is pouring money into funds that mimic an index, like the S&P 500, that charge very little in fees.

While I applaud being frugal and holding active managers’ feet to the fire, the crowd is very likely looking in the rearview mirror at this point. In general, stocks in the S&P 500 have become quite expensive while many across the “index divide” are actually fairly cheap. The latter area is where we need to hunt for bargains.

~ Kevin Duffy, The Coffee Can Portfolio, February 18, 2020

Bloomberg Businessweek on index funds

The index fund is one of a handful of unambiguously beneficial financial innovations.  Before it caught on, investors routinely paid sky-high fees to active stockpickers who often delivered subpar returns. The near-universal popularity of index funds puts them up there with Social Security, Stevie Wonder, and streaming TV.

~ Bloomberg Businessweek, "The Great Index Fund Takeover," January 13, 2020