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How Einhorn Sees Passive Fund Management

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Einhorn’s view of passive fund management

At the GIBI (Great Investors’ Best Ideas) investment symposium in Dallas in October 2016, billionaire investor David Einhorn shared his view of passive fund management investment strategies, stating that they are “fundamentally momentum strategies.”

According to Einhorn, when there is a momentum-oriented market (SPY) (QQQ), passive fund management strategies do well, but when there is an other-than-momentum-oriented market, active fund management strategies do well. So far in 2017, the passive fund management strategy, or indexing strategy, has done very well. Active money managers have faced tough situations this year as investors have rushed to passive fund management.

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Since the US election in November 2016, major indexes in the US such as the S&P 500 index (SPY), the Dow Jones Industrial Average (DIA), and the Nasdaq Composite indexes have all been showing improved performances. After the US election, the optimistic view on the US economy and the huge expectation for policy reforms have mainly driven index movement.

Major index tracking ETFs

Major ETFs that track the performance of such indexes include the SPDR S&P 500 ETF (SPY), the iShares Russell 2000 ETF (IWM), and the iShares Core S&P 500 ETF (IVV). These funds have returned nearly 9.5%, 5.6%, and 9.7%, respectively, on a year-to-date basis, as of July 19, 2017.

For more on this subject, you may be interested in reading Market Realist’s series A Look at Goldman Sachs’s Current Strategy and Stock Picks.

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