The Rise in Passive and Thematic Investing

By Michael Ferreter


Rich Excell, CFA, CMT,
Financial Markets Commentator and Clinical Assistant Professor,
University of Illinois

Perry Grueber, IRC, Director, Client Services, Modern IR

Pat Tschosik, Senior Portfolio Strategist and Head of Thematic Research, Ned Davis Research

Moderator: John Rouleau, Managing Director, Investor Relations, ICR


  • Moderator John Rouleau opened the panel by noting that the world is changing rapidly – and joked that an alternate title for this session might be, “Why is my stock going down?” Passive investments will soon surpass actively managed money, with implications across IR.
  • Rich Excell said the trends are clear: money flows into passive are outpacing active in part because “more than 90%” of active managers have not outperformed their benchmarks in a low interest rate environment. Quantitative tools allow fundamental analysis to be applied at scale, reducing the costs of managing passive investments. Advantages of exchange-traded funds (ETFs) versus stock mutual funds include liquidity (trades can be executed all day, not just after market close) and tax advantages (e.g., they are less likely to distribute capital gains taxes when the market declines).
  • Perry Grueber described ModernIR’s view that presently only about 10% of a company’s daily trading is tied to active investors – those firms receptive to a company’s story and performance. Another 27% represents trading by passive platforms that track performance relative to peers and the market. The vast majority of daily trading for most equities is tied to high frequency trading.
  • Pat Tschosik discussed the role of themes in investing. For example, picking stocks without sector or market cap constraints, such as 3-D printing or clean energy or work from home, would generate names that otherwise wouldn’t be grouped together. In other words, thematic investing allows managers to create a basket of stocks using an active approach. Know your company’s themes and include relevant buzzwords in your investor messaging, including the IR website, so artificial intelligence searches can more easily find your company and stock.