Eric Balchunas (for Info only, not official)

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Eric Balchunas

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    ...This is a common outcry from the financial industry and investors alike in reaction to the rapid rise of “passive” index funds and exchange-traded funds (ETFs), which now have about $5 trillion in assets in the US. Investors have an understandable tendency to see passive investing as a bunch of robotic investors putting money into robotic funds run by robots. But if you examine all the aspects of passive investing—from the index construction to the usage to the management of the funds—there isn’t a whole lot robotic about it. In fact, it involves a lot of human decision making. Here are five ways “passive” is actually active. Index construction: Investors and the media view some popular indexes as gospel in terms of being representatives of the market. But really, all of them are rules-based systems designed by humans (with a variety of motivations) who made decisions in constructing them. How do stocks get added and removed? Are there caps to one stock’s weight? How often will it rebalance? Reconstitute? For example, the S&P 500 Index is overseen by a committee of market professionals who basically decide what stocks to include. ...

    Live Mint on March 7, 2017, 12:52 a.m.