TPSC - Is Market Efficiency At Risk As Passive Equity Products Hold Higher Assets Than Their Actively Managed Peers?

2024-06-28 11:30:00 ET

Summary

• As AUM in passive equity products surpassed the AUM in actively managed equity products in Q4 2023, some market observers raised concerns that this could impact the efficiencies of the equity markets around the world.
• The main reason for this concern is that passive products buy a security because it is a constituent of an index and not based on an analysis of the fundamentals or the evaluation of the company’s business model.
• This line of argument doesn't take active management into consideration. Active managers can exploit market inefficiencies to generate outperformance compared to the respective market indices.

As assets under management in passive equity products surpassed the assets under management in actively managed equity products in Q4 2023, some market observers raised concerns that this could impact the efficiencies of the equity markets around the world....

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