Economics & Markets

Passive Investments Have Rewards and Risks Alike

By AMP Capital

Passive investments such as index funds and exchange traded funds (ETFs) provide cheap access to global stockmarkets, but AMP Capital’s Head of Investment Strategy and Chief Economist, Shane Oliver, says they create risks of their own.

“Yes there is a positive to passive investing, it gives you the underlying exposure and the fees are low,” Oliver says, adding that “a lot of effort goes into stock picking that doesn’t necessarily pay off over the long term”.

As the trend toward passive investment rises around the world, though, Oliver wonders if things have been pushed too far. He cites the tech boom in the 1990s as a case in point. Those in passive share investments were more exposed when the tech boom burst than active investors who were in funds where the fund managers were buying shares based on traditional valuations.

“The demand for passive investment reflects a healthy view that the key is getting exposure in the market,” he says, but “you have got to go in with your eyes open”. 

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Important notes

While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455)  (AMP Capital) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided and must not be provided to any other person or entity without the express written consent of AMP Capital.

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