Cazenove: Passive Funds Don't Work for Value Investors

Investors should invest in a passive fund with an active strategy, as you may end up investing in stocks that lose you money by investing in an index-tracking fund

Karen Kwok 4 May, 2017 | 5:30PM

Passive funds, which include ETFs and index-trackers, now account for 44% of assets under management in North American equity funds. To Caspar Rock, chief investment officer at Cazenove Capital, this means that 44% of investors are forced to buy failing companies.

“A tracker fund buys every single stock in the index; the portfolio is weighted according to the size of the company, not according to the prospects and quality of the company. People are saying they do not care about the valuation of an individual stock when they buy passive funds,” said Rock.

Speaking at an investment seminar in London yesterday, Rock explained his point using the example Simon Property Group (SPG). Simon Property Group manages the largest number of shopping malls in America. The shopping mall industry is struggling at the moment because consumers prefer to shop online rather than going to the mall. As the industry is disrupted significantly by e-commerce, Simon Property Group is among the most shorted in the S&P 500.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Simon Property Group Inc68.51 USD10.15

About Author

Karen Kwok

Karen Kwok  is a Reporter for Morningstar.co.uk

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