By John Eckstein, CIO, Astor Investment Management
As the investing public, from institutions to individuals, moves away from stock picking and other traditionally active strategies, the beneficiary is passive investing.
As the Wall Street Journal reported recently, pension funds, endowments, 401(k) retirement plans, and retail investors are opting increasingly for passive investing that tracks an index.
For the three years ended Aug. 31, investors added nearly $1.3 trillion to passive mutual funds and passive exchange traded funds (ETFs), while taking more than $250 billion from active funds, according to Morningstar.
Passive investment products can be powerful tools. But so is a chainsaw. In both cases, you need to know how to use them.
Passive investing may be appealing to some investors compared to traditional active investing such as stock picking, which is inherently difficult.
Investors who want to track market performance often prefer passive funds as a way to capture “beta” at a lower cost than active funds. In addition, traditional active funds often underperform their benchmarks.