When passive becomes active

As Rob Arnott of Research Affiliates rightly pointed out, it is difficult to remain meaningfully passive when passive investing has become more than half of the market.

Today, buying an ETF on the S&P 500 increasingly means buying the technology sector in disguise. Information Technology represents close to 38–39% of the index, while the ten largest companies account for around 38.1% of the S&P 500. The three largest weights alone are Nvidia, Apple and Microsoft, representing respectively around 6.9%, 6.3% and 4.3% of the index.

The AI trade has contributed materially to the recent market performance. But the dominance of one theme, the concentration in a small number of names, and the growing importance of passive flows may also create additional risks and volatility going forward.

Stay selective.

Disclaimer: This publication is for informational purposes only and does not constitute investment advice, a recommendation, or an offer to buy or sell any financial instrument.