- Passively managed funds do offer the lowest fees but invest in stocks without “thinking”.
- High positive net inflows into passively managed funds push large caps higher regardless of fundamentals.
- If non “thinking” investors panic when things turn, large caps will be the worst performers.
Today we are going to discuss two related topics: fees and the general market consequences of passively managed investing funds.
Fees are charged by funds for their services, be it active or passive management. Passively managed funds, which have the lowest fees, merely track an index. Over the last several years a trend has developed toward lower fees and passively managed funds which may also be creating a growing risk that equities are held by “weak” hands. If panic comes, and investors pull their money out, passive fund managers will be forced to sell, creating further market havoc. More →