Event Details

Accounting and Finance Research Seminar presented by Pat Akey, University of Toronto. Paper title: "Closet Active Management of Passive Funds" (with Adriana Z Robertson and Mikhail Simutin)

https://www.rotman.utoronto.ca/FacultyAndResearch/Faculty/FacultyBios/Akey

ABSTRACT

We document substantial activeness among index funds and ETFs: conventional proxies suggest that a third of these ostensibly passive funds exhibit more activeness than the median actively managed fund. Using hand-collected prospectus data, we find that index funds and ETFs offer an increasingly wide assortment of styles and proprietary indices. Simple size and value/growth categorizations, such as those provided by common databases, describe styles inadequately, while prospectus-based styles offer a more complete description. In contrast to the well-established poor performance of “closet indexers” found within actively managed funds, we show that in the world of “passive” management, it is the more active funds that underperform. The underperformance of these “closet activists” is most severe among funds tracking a proprietary index and following unconventional investment styles.

JEL Classification: G10, G12, G14, G20, G23.

Keywords: exchange-traded funds, index funds, active and passive asset management, benchmarks.