According to Mikkel Svenstrup, chief investment officer at ATP, Denmark's largest pension fund, the private equity industry is looking more like a pyramid scheme. Kaye Wiggins reports for the Financial Times: A top executive at Denmark’s largest pension fund has compared the private equity industry to a pyramid scheme, warning buyout groups are increasingly selling companies to themselves and to peers on a scale that “is not good business”. Mikkel Svenstrup, chief investment officer at ATP, said he was concerned because last year more than 80 per cent of the sales of portfolio companies by … [Read more...]

Is it time to talk about the defects of index funds now? That's the question being asked by Hunter Lewis in Barron's. He writes: Index funds have had a spectacular run. They collected $8.5 trillion in retail investment dollars by the end of the first quarter of this year, according to Morningstar, more than all active strategies together. Along the way, they became the dominant investment idea. Yet the stock market’s recent dip into bear-market territory raises new questions for these popular funds. Will indexing recover and go on to scale new heights? Or has the time come to consider its … [Read more...]

For the first time ever, passive index funds own more of the U.S. stock market (16%) than actively managed funds (14%). The change represents a rapid reversal from only ten years ago when actively managed funds owned 20% of the market, and passively managed funds owned a mere 8%. Steve Johnson reports for the Financial Times: Passively managed index funds have overtaken actively managed funds’ ownership of the US stock market for the first time, data show. Passive funds accounted for 16 per cent of US stock market capitalisation at the end of 2021, surpassing the 14 per cent held by active … [Read more...]

The innovation bubble looks like it has gone bust. The ARK Innovation ETF is down almost 80% from its all-time high. Those are dotcom-type bust numbers. Disruptive technologies that were supposed to change the world have been some of the best performing stocks over the last decade. The hype cycle reached a peak following COVID. Investors heard for years that this breed of disruptive technology firms was different than the dotcom bubble era companies. Why? Because these stocks had real revenues and real cash flows. We would note, no dividends to speak of, but yes there was real revenue and … [Read more...]

In the Financial Times, Tatjana Puhan explains how heavy trading of ETF bond funds could lead to lower liquidity during times of market stress. She writes: The market volatility triggered by the Ukraine war is a reminder that crises can expose hidden stresses and strains that have built up over time in the financial system. Boom time changes to market structures can turn into significant risks when there is an abrupt turn in conditions, particularly when trading liquidity dries up. In that context, investors should note one recent change to the financial plumbing of US markets. The New … [Read more...]

Can an investing model created to supply certain companies with easy money work when there isn't a bubble in the market? That's the suggestion of James Mackintosh in The Wall Street Journal, who says that in a bubble-less world, ESG investing won't make the difference it intends to. He writes: A full-blown ESG bubble would surely encourage investment in things that count as “good” ESG, especially low-carbon energy. Every other bubble in history has been accompanied by a corporate spending boom, whether on canals, railways, the internet or mines, as existing companies take advantage of cheap … [Read more...]