Introduction
The article “Active, Passive, Retail, ESG, and Value; Oh My!” aims to give readers insight into how the US equity market has changed in terms of its investors. It also looks for evidence of pricing distortions due to ESG-oriented variables and discusses the history of the environment of factor investing (which includes ESG factors). Some of the most important findings and inferences made by the writers assert that the MSCI All-Country World Index currently has a weighting of 60% in the United States (Taylor et al., 2022). Even if passive’s meteoric ascent has halted, the authors think it still has space to expand.
Discussion
The article presents data and charts showing that passive investors have been growing their proportion of the market over the past five years, nearly entirely at the cost of active investors. As more and more people choose to put their money where their values are, the lines between passive and ESG investing will blur. The proportion of the market that is controlled by value investors is at about a two-decade low; nevertheless, if passive investors are successful in gaining market share, perhaps a comeback should not necessarily be expected. Additionally, using the rolling z-score technique, the authors did not confirm the growing importance of ESG in the investing environment (Taylor et al., 2022). This finding suggests that many managers are not using this information. Traditional investors who focused on “value plus momentum” have disappeared as a category.
Conclusion
The biggest threat to value is most likely posed by an economic downturn or a movement of interest rates closer to zero. The possible gain in the Value trade has narrowed in recent times, yet it is still rather wide in comparison to the past and is highly likely to get much smaller in the future.
Reference
Taylor, D., Gao, E., & Iyer, A. (2022). Active, Passive, Retail, ESG and Value; Oh My! Man Institute | Man Group. Web.