Growth and Value Indexing are Broken

[GeoffF100]

Here is an interesting article:

https://www.bloomberg.com/view/articles ... oth-broken

[johnhemming]

Its a recipe for another bubble. I accept that market momentum is worth taking into account, but the increased demand from passive funds runs the risk of driving up the prices of those stocks that fit the formula.

[GeoffF100]

If a majority of investors want value, that pushes up the prices of value stocks, however they buy them, directly, through a passive fund or through an active fund. Similarly for growth stocks, or for dividend stocks. That is good if you get in at the beginning of the cycle, but bad if you get in at the end. The problem is that you do not know where the beginning and end of a cycle are, except with hindsight.

[OhNoNotimAgain]

The writer has not factored in the impact of QE.

From March 2009 until eary 2016 the extra liquidity created by QE drove growth companies.

However, since early 2016 value has outperformed as QE came to an end.

[GeoffF100]

I have also read that investors are now exiting income funds, which is probably a good sign for value. Nonetheless, the article does drive home the fact that both the growth and value index funds are poorly diversified.