The downside of passive investing
The lure of low fee in exchange-traded funds can make you penny wise and pound foolish
The lure of predicting short-term price movements is hard to resist for market participants. Whether or not it benefits investing outcomes is highly debatable but it’s an enjoyable pastime nonetheless. With the rise of passive investing over the past few decades, albeit to a smaller degree in India, a recent addition to this has been the game of predicting which stocks will get included in the benchmark indices at their periodic reviews. To the uninitiated, passive investing is an approach that seeks to match, not beat, the return of a particular stock index by attempting to totally or substantially mimic the index. While local investors are focused on the CNX Nifty or S&P BSE Sensex, foreign investors benchmark to indices created and maintained by the MSCI or FTSE.