It's Time For Index TV

There's been a seismic shift in investing from actively managed funds to "passive" (index-based) funds.

The shift to passive

Consider these facts from a recent blog post by Anne Tergesen and Jason Zweig:

  • For the three years ended August 21, 2016, $1.3 trillion was added to passive funds and exchange-traded funds.

  • During the same period, there was an outflow of more than $250 billion from actively managed funds.
  • Hedge funds reported three consecutive quarters of withdrawals for the first time since 2009.
  • 401(k) plans now have 25 percent of their assets in index funds.
  • Public pension plans have 60 percent of their U.S. stock allocations in index funds.
  • Endowments and foundations now have 63 percent of their assets in index funds.
  • Philip Bullen, a former chief investment officer at Fidelity observed: "The case for passive is being made so well and so clearly. It has become common wisdom."

    The disconnect with the financial media

    This "common wisdom" has not penetrated the financial media. The vast majority of its programming features fund managers, analysts, investment "pros" and other pundits discussing the direction of the market, their stock picks or why their actively managed fund is a candidate for outperformance.

    These blog posts, on CNBC's website, under the column "Latest Pro", are typical:

    • Weiss: Your hedge fund investing setup for the week ahead.

  • Top international fund manager on how to invest globally, his top small-cap growth picks.
  • Bank of America cuts Whole Foods to sell on shrinking margins, slashes forecast to $25
  • HSBC downgrades Teva on uncertainty surrounding DOJ's reported generic drug investigation.
  • Responsible investors should pay no attention to any "hedge fund set-up." The stock picks of a "top international fund manager" are no more likely to be accurate than a coin toss. Forecasts and downgrades by the Bank of America, HSBC and others are not reliable.

    The financial media continues to disseminate discredited advice because its advertisers -- the securities industry -- pay it to do so.

    It's time for a change

    When I started writing books and blog posts about index-based investing in 2002, it was much like pushing a snowball uphill. Index investors were derided by "pros" as not being intelligent enough to do research on stocks and willing to settle for "average" returns. Another common critique was how my colleagues and I could write blog posts every week extolling the virtues of a simple theme: Buy index funds.

    How the times have changed! The Internet has played a meaningful role in educating investors about the "emperors with no clothes" who purport to have the ability to pick stocks, time the market and select the next "hot" fund managers. So have excellent financial journalists and authors like John C. Bogle, Burton Malkiel, Jason Zweig, Jonathan Clements, Larry Swedroe, William Bernstein, Ron Lieber, Allan Roth, Carl Richards, Tim Maurer, Manisha Thakor, Rick Ferri, Mark Hebner and many others.

    In the aggregate, despite receiving limited media coverage, they generated many fine books and thousands of blogs, accessed by millions of investors. They turned the tide. Investors were the beneficiaries.

    Responsible programming

    It's time for the next phase. A program on network or cable television, or an independent channel, called "Index TV." Instead of the nonsensical musings of Cramer or tips from "technicians", this channel would feature sound, academically based, investing advice. It would showcase stories you won't see in the financial media like why brokerage firms who have admitted engaging in unethical and criminal conduct are still permitted to provide investment advice to gullible investors. It would discuss the data on active management, the lack of evidence supporting technical and fundamental analysis and the importance of low fees and costs.

    It would expose the conflicts of interest that are rife in the securities industry. It would discuss the flaws in our retirement plan system that serve to enrich the securities industry at the expense of plan participants.

    Best of all, Index TV would be a resource that would actually benefit investors instead of exploiting them.

    Potential advertisers

    The beneficiaries of the shift to passive investing would be likely supporters of Index TV. Blackrock has more than $4.6 trillion under management. Vanguard has over $3 trillion. Dimensional Fund Advisors manages over $445 billion. I assume Blackrock and Vanguard have huge advertising budgets. Dimensional has never advertised. Maybe Index TV would cause it to change its policy and increase the name recognition of its excellent passively managed funds (available only through authorized advisors) to investors.

    There are many other fund families and advisory firms that put the interest of their clients first and recommend only passively managed funds. These firms are other sources of support for Index TV.

    Investors deserve better than the steady drumbeat of misinformation currently on financial media.

    It's time for Index TV!

    The views of the author are his alone. He is not affiliated with any broker, fund manager or advisory firm.

    Any data, information and content on this blog is for information purposes only and should not be construed as an offer of advisory services.