10.01.19
Rise of Passive Investing Poses Risks: Fed Report
by: Bernice Napach
A recently updated report from the Federal Reserve Bank of Boston and the Federal Reserve Board acknowledges benefits from the shift from passive to active investing but warns of risks. The shift may increase liquidity and reduce redemption risks in financial markets while cutting costs and improving performance for individual investors, since most active funds don't outperform over the long haul. The shift, however, also magnifies industry concentration among asset managers, which can increase risks when one or more large firms have operational problems. It may also increase the correlation of returns and liquidity among stocks included in the same index and, in the case of leveraged funds, increase the volatility of financial markets.
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