A New Era for Passive Investing

Passive ESG, ETFs, and Smart Beta Indices

Passive investing is becoming pervasive, spreading throughout the investment industry.  Products such as ETFs easily allow institutional investors to create allocations that mimic the performance of an index and to facilitate other changes within their portfolios.  More recently, we have also seen the advent of ESG-focused indices that focus upon companies with high ESG scores, and smart beta indices that allow for targeted exposures to specific factor premia.

The passive investment universe continues to expand.  Morningstar even predicts that the total assets in passive investments will overtake active AUM sometime in 2019.  Does this constitute a new era?  Read on for some of the top whitepapers on these topics, as well as a review of recent literature in the ongoing active versus passive debate.  

PASSIVE ESG

Passive Investing 2019: The rise of stewardship (CREATE-Research/DWS)

CREATE-Research (sponsored by DWS) produced this report, which summarizes a survey of institutional investors on the topic of passive investment. Two thirds of respondents to the survey consider passive index investing to be a mature portion of their portfolios.

Calvert Responsible Index Series Reconstitution Report (Eaton Vance, Aug 2019)

For compliance reasons, this paper is only accessible in the United States and Canada

This report is a summary of updates to Calvert's Responsible Index Series that were made in June of this year. These five indices offer exposure to companies in multiple sectors that meet the Calvert Principles for Responsible Investment.

Integrating ESG into Core around the World: The S&P 500® ESG Index and Beyond

S&P's ESG Indices (including the S&P 500 ESG index) match ESG values with investment objectives, helping to serve as benchmarks and as a basis for other index-linked products.

ETFS

Guide to ETFs (BlackRock, 2019)

For compliance reasons, this paper is only accessible in certain geographies

The index investing evolution has spawned a broad range of vehicles and indices for institutional investors to choose from. This report highlights ways that institutions are using ETFs across asset classes to improve portfolio outcomes.

ETFs: Rising on the Indexing Tide (iShares, 2019)

For compliance reasons, this paper is only accessible in the United States

The movement of assets from active management to index strategies has been one of the biggest drivers of ETF demand over the past decade. Morningstar also states that index strategies may overtake active management sometime in 2019.

Exchange-traded funds: Clarity amid the clutter (Vanguard, 2019)

Vanguard looks at the roles that ETFs can have, including the provision of liquidity and market information and other ways that they serve as useful tools for institutional investors.

FACTORS / SMART BETA INDICES

Alternative approaches to multi-factor index construction (FTSE Russell, 2018)

Should multi-factor indexes be constructed using a bottom-up or top-down framework? FTSE Russell compares different approaches to factor index construction.

How to Reconcile Single Smart Factor Indices with Strong Factor Intensity (Scientific Beta, 2019)

The single smart factor indices from Scientific Beta utilise a filter for high factor intensity that also looks at multi-factor interactions for the selected securities.

ACTIVE VS PASSIVE

Are Passive Funds Really Superior Investments? An Investor Perspective (CFA Institute Research Foundation, 2019)

This CFA Institute Research Foundation study attempts to determine which ETFs capture variation in indices and have the potential to outperform active funds in future periods.

The Historical Record on Active vs. Passive Mutual Fund Performance (2019)

Fund selection and screening may play an important role in the active vs passive debate. This study finds that after weeding out the non-competitively priced active funds, the difference between active and passive fund performance is not statistically significant.

How should I combine active and passive in my portfolio? (Fidelity International, Jun 2018)

For compliance reasons, this paper is only accessible in certain geographies

Fidelity International reframes the debate on active versus passive management, with the idea that the entire continuum may need to be embraced instead.