Broad is the New Narrow: How Passive Investing Creates Concentrated Portfolios
15 Pages Posted: 10 Aug 2011
Date Written: April 1, 2011
Passive investing, particularly in emerging markets, has become an increasingly popular means of quick, “diversified” exposure to a particular segment of the markets. Defensive investors, as Benjamin Graham noted, would be best served owning a diversified list of leading companies. Yet it’s the presumption of diversification that can lead investors astray. Many passive investments are, in fact, extremely concentrated owing to the disproportionate size of its largest holdings and blindly weighting by market capitalization. With emerging markets now the largest region of the equity markets by number of investable securities, they offer opportunities for investors willing and able to invest actively outside of the largest securities.
Keywords: Brandes, Brandes Institute, value investing, active vs passive investing, investment strategy
JEL Classification: G10, G11, G12, G14
Suggested Citation: Suggested Citation