On the other side of the ledger, Einhorn still can’t catch a break on his short position in electrical vehicle maker Tesla. He told investors in the September quarter that the stock had peaked; but in the final three months of the year it actually rose 26 per cent, despite some bumps along the way.
Einhorn, of course, is one of many value investors who have struggled in recent years.
Market turmoil
Until the middle of last year, surging growth stocks such as Apple, Google’s parent Alphabet and, to a lesser extent, the aforementioned Tesla, gave the dying bull market one last crazy surge.
Since then, the turmoil on global markets has battered growth and value investors – although no doubt the likes of Einhorn will believe their day is coming given this change in conditions.
The question is, will investors still back investors such as Einhorn to deliver the returns of yesteryear?
Morningstar estimates that some time in 2019, the percentage of assets held by exchange-traded funds in the US – those index-hugging passive vehicles – will break through the 50 per cent barrier from their current level of about 48 per cent.
The research firm says through the first 11 months of last year, US investors pulled an estimated $US150 billion from actively run funds across asset different classes, excluding money markets. In contrast, they added $US395 billion to passive funds, according to Morningstar.
Importantly, this trend was particularly pronounced when markets got rocky. In November, as volatility rose, investors redeemed about $US50 billion from active funds, while index funds took in a similar amount.
There were some ups and downs with these trends, of course. As tech stocks got smashed in the latter stages of the year, tech-focused ETFs saw their biggest quarterly outflows ever, with $US5 billion pulled out of these vehicles in the December quarter.
But overall, it’s fascinating that even as the benchmarks the ETFs follow headed south in the final months of 2018, US investors were happier to put their faith in these “dumb” index funds than the supposedly genius stock pickers, who would no doubt argue that their swim-against-the-tide skills come to the fore in conditions like this.
It is of course unfair to use an outlier such as Einhorn to make the case for active investing – although the HFRX Global Hedge Fund Index fell 7 per cent in 2018 – but value investors particularly like to say that bear markets are where their skills have the greatest impact.
No doubt that’s true. But the question is, will investors be prepared to trust them this time around – and more importantly, pay up for the out-performance they promise.
Einhorn will be hoping the answer is: yes.
from Viral up Blog http://bit.ly/2QjN6LD
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