Carnegie Market Blog


Disruption and Active with Passive

Posted by Brent Luce on Apr 20, 2017 4:48:00 PM

Getting Active with Passive Investments

The battle between active and passive investing has been a topic for years.  There are arguments for both and there are varying ways to successfully deploy these strategies. I have blogged before about the proliferation of ETFs and that many investors seek ETFs because they believe they are passive, but in many cases the ETFs they are investing in are specialized and, therefore, not passive.  There is even a whiskey ETF, which I blogged about back in October. Not only are people investing in non-passive ETFs, but they then trade in and out of these not-so-passive ETFs, thereby executing a very active approach.  I have yet to meet an individual investor who successfully held passive ETFs through a bear market without making changes or reacting emotionally at the wrong time.  There are some truly passive ETFs in existence, but as the table below illustrates, even those are not being used as passive investments.  SPY, which is the best known and a truly passive ETF has an average holding period of only 15 days – investors are using this to adjust market exposure on a short-term basis.  

Read More

Topics: Jobless Claims, Passive Investing, $AMZN,, Disruption

The Sleeping Dog Has Woken

Posted by Brent Luce on Sep 9, 2016 4:47:25 PM

Low Volatility ETFs

As I have mentioned before, over the past couple of years, investors have flocked toward high-dividend paying stocks which are traditionally lower volatility stocks.  Many of these stocks have been driven to all-time high valuations and the investor base has changed in that many holders are now there just for the yield.  While these stocks have historically been lower volatility stocks, if interest rate expectations were to strongly reverse, it is quite possible that these allegedly safe stocks might in fact be more volatile than the market.  As part of the proliferations of indices (read last blog post about this), investors can now invest in a wide variety of themes, including so called low volatility ETFs which invest in stocks that have exhibited lower volatility than the market over the past year.  Today is the biggest down move since “Brexit”, and guess what?  The low volatility index is down MORE than the market as a whole.  I have not fully analyzed it, but my hunch is that the low volatility ETFs consist largely of dividend paying and therefore interest rate sensitive stocks.  The chart below supports this case, illuminating the underperformance of “low volatility” versus the general market since the recent low in interest rates.  This reminds me a bit of 2008 when investors trusted backward looking volatility data and were blind to the fact that certain correlations will change when market conditions change.  

Read More

Topics: Interest Rates, Consumer Staples, Market Decline, Passive Investing, Occupy Wall Street

Driverless Ubers and Whether Passive Investing is Worse than Marxism

Posted by Brent Luce on Aug 26, 2016 3:16:23 PM

 The Proliferation of Indices

The chart below shows the growth in the number of indices over time.  Just over the past couple of years, this measure has exploded.  Why is this happening?  In the past few years, there has been a push toward passive investing versus active investing. Investors are being sold on this idea by companies who provide so called “passive” investment strategies like ETFs. These ETF providers are always looking for more products to sell and, as a result, work with indexing companies to create new indices on which to base their ETFs.  Now, there are over 5,000 indices – more than the number of stocks in the Russell 3000.  RELATED:  Passive Investing is Worse than Marxism.

Read More

Topics: Autonomous Cars, Passive Investing, Index Proliferation, Uber

Share this Blog


Carnegie Cropped eBook No Shadow-min

"Top 4 Questions to Ask Before Hiring a Financial Advisor"

What You'll Learn

  • The difference between fiduciary and suitability standards
  • Learn how some advisors may not be required to work in your best interest
  • Be aware of various types of hidden costs
  • The importance of third party custodians
  • The difference between fee-based and fee-only

Download Your Copy of the eBook Below

Recent Posts

Subscribe here for monthly blog updates!