The Shift from Active to Passive Investing: Risks to Financial Stability?

Anadu, Kenechukwu; Kruttli, Mathias S.; McCabe, Patrick E.; Osambela, Emilio

doi:10.1080/0015198x.2020.1779498

Cited by 58 publications

(29 citation statements)

References 42 publications

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“…Using this method, we draw attention to the importance of primary markets within the context of the low-carbon transition by applying the PMCE to fixed income ETFs. ETFs and other passive investment funds accounted for 30% of fixed income fund AUM in 2020, up from less than 5% in 1995 (Anadu, Kruttli, McCabe, & Osambela, 2020). We show that ETFs in our sample systematically partake in primary market transactions by investing in new issues before they are included in indexes that rebalance monthly.…”

Section: Introductionmentioning

confidence: 70%

“…Third, in fixed income, passive investing accounted for 30% of fund AUM in 2020, up from less than 5% in 1995 (Anadu et al, 2020). ETFs account for approximately half of passive fund AUM, as well as half of passive fixed-income fund inflows over the past decade (Anadu et al, 2020). Using these ETFs provides an insight into a rapidly growing part of fixed income and its ability to shape primary markets.…”

Section: Primary Market Carbon Exposurementioning

confidence: 99%

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Breaking the Bond: Primary Markets and Carbon-Intensive Financing

Wilson

Caldecott

2021

SSRN Journal

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Aligning finance with sustainability is a necessary condition for tackling the environmental and social challenges facing humanity. It is also necessary for financial institutions and the broader financial system to manage the risks and capture the opportunities associated with the transition to global environmental sustainability.The University of Oxford has world-leading researchers and research capabilities relevant to understanding these challenges and opportunities. The Oxford Sustainable Finance Programme (OxSFP) is the focal point for these activities and is situated in the University's Smith School of Enterprise and the Environment. OxSFP is a multidisciplinary research centre working to be the world's best place for research and teaching on sustainable finance and investment.OxSFP is based in one of the world's great universities and the oldest university in the Englishspeaking world. We work with leading practitioners from across the investment chain (including actuaries, asset owners, asset managers, accountants, banks, data providers, investment consultants, lawyers, ratings agencies, stock exchanges), with firms and their management, and with experts from a wide range of related subject areas (including finance, economics, management, geography, data science, anthropology, climate science, law, area studies, psychology) within the University of Oxford and beyond. Since our foundation we have made significant and sustained contributions to the field, including in some of the following areas:• Developing the concept of "stranded assets", now a core element of the theory and practice of sustainable finance.We would like to thank Dariusz Wójcik, Thom Wetzer, Ulf Erlandsson, and Ellen Quigley for discussions, engagement, and feedback on this topic, as well as the internal and external reviewers who provided many insightful comments.

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Section: Introductionmentioning

confidence: 70%

Section: Primary Market Carbon Exposurementioning

confidence: 99%

Breaking the Bond: Primary Markets and Carbon-Intensive Financing

Wilson

Caldecott

2021

SSRN Journal

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“…Thus, if mutual and hedge funds want to continue investing in such firms, they need to look for them in the (late-stage) private equity market. Another potential explanation may be found in the surge of low-fee, passively managed mutual and exchange traded funds since the mid-1990s (Anadu, Kruttli, McCabe, and Osambela, 2020). Investing in private firms, which are excluded from the indices typically tracked by passive funds, may help active funds beat the returns of their passive counterparts, at least on a non-risk-adjusted basis-thereby helping justify the active funds' higher fees.…”

Section: Changes Affecting Investors In Private Marketsmentioning

confidence: 99%

Private or Public Equity? The Evolving Entrepreneurial Finance Landscape

Ewens

Farre-Mensa

2021

SSRN Journal

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The U.S. entrepreneurial finance market has changed dramatically over the last two decades. Entrepreneurs raising their first round of venture capital retain 30% more equity in their firm and are more likely to control their board of directors. Late-stage startups are raising larger amounts of capital in the private markets from a growing pool of traditional and new investors. These private market changes have coincided with a sharp decline in the number of firms going public-and when firms do go public, they are older and have raised more private capital. To understand these facts, we provide a systematic description of the differences between private and public firms. Next, we review several regulatory, technological, and competitive changes affecting both startups and investors that help explain how the trade-offs between going public and staying private have changed. We conclude by listing several open research questions.

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“…Globally, a substantial shift has been witnessed from active investing towards passive investing by the investment community. The factors contributing to this shift include underperformance of actively managed funds relative to the benchmark index, increased compensation to the fund managers, investable stock index funds and low cost associated with passive investing (Anadu et al, 2020 ; Sushko & Turner, 2018 ). Passive investment domain consists of index funds often invested through mutual funds and Exchange Traded Funds (ETF’s), both of which aim to mimic the performance of the benchmark index.…”

Section: Introductionmentioning

confidence: 99%

Investment Performance and Tracking Efficiency of Indian Equity Exchange Traded Funds

Alamelu¹,

Goyal

2022

Asia-Pac Financ Markets

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Exchange Traded Funds (ETF’s) are one of the beloved passively managed funds that offer both retail and institutional investors an access to highly profitable and wide- range of diversifiable financial assets. The study aims to assess the ability of Indian equity ETF’s in replicating the performance of their benchmark indices using a sample of 27 equity ETF’s traded on the National Stock Exchange of India during the pre-pandemic period from 01/01/2015 to 31/12/2019. Evaluation of the performance of sample ETF’s through risk-return analysis, risk-adjusted performance measures, tracking error analysis and multi-factor regression have revealed that the majority of the sample ETF’s outperformed their tracking indices but with notable tracking errors during the study period. Further, the study also indicates that the returns of the sample ETF’s have a significant and positive relationship with the returns of the index but are inversely related to risk and management fees. The results of this study will have major implications for investors in evaluating the performance of ETF’s and fund managers as well in taking suitable measures to reduce tracking errors that will help in successful replication of the benchmark along with undertaking initiatives that will enable the ETF’s to become price efficient.

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The Shift from Active to Passive Investing: Risks to Financial Stability?

Cited by 58 publications

References 42 publications

Breaking the Bond: Primary Markets and Carbon-Intensive Financing

Breaking the Bond: Primary Markets and Carbon-Intensive Financing

Private or Public Equity? The Evolving Entrepreneurial Finance Landscape

Investment Performance and Tracking Efficiency of Indian Equity Exchange Traded Funds

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