More and more lately it seems that I come across an article professing the benefits of ETF investing and indexing vs. active management, the uprising of “robo advisors”, and the underperformance of hedge funds. While each point could be easily argued and backed up I’m sure given recent data, I can’t help but feel all of this has been given birth due to one of the longest bull markets/lowest volatility environments in some time.
Would we see the same type of inflows if the VIX was at more normal levels? Would we see more people willing to ride the roller coaster and watch their money go up and down instead of the recent rising trend?
Look, I get it. ETF’s over the long term can provide comparable results, if not outperformance for a fraction of the cost. And with the recent trend of startup companies looking to simplify our lives for a low cost, it is a natural progression that they focus on our investments. But on a day to day basis with retail investors who are irrational, I find it hard to believe that we would see same amount of money flying into these passive investment vehicles if we were seeing more volatility or downturn in the market. I can’t help but think that once things start to go in the other direction, we will start to see more and more people looking for downside protection and buffer.
Passive and ETFs aren't going away and have been tested in bear markets. Robo-advisors on the other hand...
you're mistaking investment strategy for types of securities. ETFs don't have to be passive, they just are traditionally. indexing does have downside vol similar to the market (it's an index fund, DUH), and I'll save you from a dissertation on robo advisors (check my blog, I think the first part addresses this), but it won't affect my business at all. it's not a passive v. active ETF thing, people put money into things after they've done well and take it out after they've done poorly, as they always have done and as they always will do.
sidebar: so this doesn't turn into a shit throwing bonanza, data can be shown to support and refute indexing or active management, I think it's more of a philosophical belief based on what's important to you as well as what your goals are. trying to convince someone like jack bogle that active management is the way to go would be like trying to convince a Rabbi that the messiah's already came, not bloody likely.
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