Executive Summary
Equity investors have long treated broad market indices as diversified, efficient, and neutral. This paper argues that all three assumptions now deserve scrutiny. Passive investing started off as a low-cost way to get diversified exposure to a stock market, without any need to analyse individual companies. This approach remains appealing to numerous investors. Nevertheless, the scale of passive investing has changed the nature of the debate and has become an important source of distortion affecting market structure.
Three issues will be addressed in this paper:
- Has passive investing structurally changed the market?
- What are the consequences for investors?
- What could reverse these conditions?
If the benchmark has become more concentrated, more valuation-insensitive and more dependent on a narrow group of index heavyweights, investors need a portfolio built on different principles. We believe our investment approach is well positioned for today’s market environment. It is benchmark-agnostic, fundamentals-driven, quality-focused, and valuation-disciplined.
