Passive investing is an increasingly crowded trade as investors blindly pour money into ETFs that hold many of the same stocks. Passive strategies grew in popularity on the premise that active managers very rarely outperform indices and, therefore, investing in mutual funds cost more than it was worth.
We agree with that premise, but we also believe that the risk/reward advantage of passive vs. active investing is not infinite. If every investor only engages in passive strategies, then large active management opportunities would emerge. We believe that passive investing has become a sufficiently crowded trade