Closet Active Management of Passive Funds
Finance & Accounting
|Speaker:||Pat Akey, University of Toronto|
|Date:||Wednesday 28 April 2021|
|Time:||16:00 - 17:00|
|Location:||Online via Zoom (link available from J.Lashkor@exeter.ac.uk)|
We document substantial activeness among index funds and ETFs: conventional proxies suggest that a third of these ostensibly passive funds exhibit more activeness than the median actively managed fund. Using hand-collected prospectus data, we find that index funds and ETFs offer an increasingly wide assortment of styles and proprietary
indices. Simple size and value/growth categorizations, such as those provided by common databases, describe styles inadequately, while prospectus-based styles offer a more complete description. In contrast to the well-established poor performance of \closet indexers" found within actively managed funds, we show that in the world of "passive" management, it is the more active funds that underperform. The underperformance of these "closet activists" is most severe among funds tracking a proprietary index and following unconventional investment styles.