Broad is the New Narrow: How Passive Investing Creates Concentrated Portfolios

15 Pages Posted: 10 Aug 2011

Multiple version iconThere are 2 versions of this paper

Date Written: April 1, 2011

Abstract

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

Institute, Brandes, Broad is the New Narrow: How Passive Investing Creates Concentrated Portfolios (April 1, 2011). Brandes Institute Research Paper No. 02-2011. Available at SSRN: https://ssrn.com/abstract=1905623 or http://dx.doi.org/10.2139/ssrn.1905623

Brandes Institute (Contact Author)

Brandes Investment Partners ( email )

11988 El Camino Real, Suite 500
P.O. Box 919048
San Diego, CA 92191-9048
United States

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