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Greenlight Capital founder David Einhorn said the company was forced to change its strategy as passive investors grew and algorithmic trading transformed the market.
On Barry Ritholtz’ Master of Business podcast, Einhorn said the market is fundamentally broken because passive investors “have nothing.” Because “they assume everyone else did the work.”
He said investors are moving beyond active management, choosing passive investments with lower fees.
Passive investments such as index funds accounted for more than 50% of U.S. listed assets by the end of 2019. Einhorn said fewer people are paying attention to individual stocks, which could be a problem for funds that invest in undervalued companies. .
When investors realize a company’s potential, stock prices rise. Additionally, quants trade based on short-term price movements rather than the actual value of a company, he said.
Greenlight Capital rose 22.1% in 2023 and 36.6% in 2022 after a 2015 loss caused by money flowing out of value investing strategies and into index funds. The company is also currently focusing on strong cash flow to fund share buybacks.
Einhorn also said that the regulatory infrastructure by the Securities and Exchange Commission (SEC) has “essentially disappeared” because it does not want to be responsible for acting against public companies that could potentially blame the SEC if they take a hit. ” he said.
Instead, he said, the SEC is focused on regulating hedge funds and cryptocurrency trading and dealing with individuals for insider trading violations.
Below are 10 of the largest passive ETFs.
- SPDR S&P 500 ETF Trust (NYSEARCA:Spy) – Assets under management: $487.6 billion
- iShares Core S&P 500 ETF (NYSEARCA:IVV) – Assets under management: $432.9 billion
- Vanguard S&P 500 ETF (VOO) – Assets under management: $1 trillion
- Vanguard Total Stock Market ETF (VTI) – Assets under management: $1.47 trillion
- Invesco QQQ Trust Series I (QQQ) – Assets under management: $247.1 billion
- Vanguard FTSE Developed Markets ETF (VEA) – Assets under management: $17.827 billion
- Vanguard Growth ETF (VUG) – Assets under management: $206.1 billion
- Vanguard Value ETF (VTV) – Assets under management: $156.9 billion
- iShares Core MSCI EAFE ETF (IEFA) – AUM: $106.49B
- Vanguard Total Bond Market ETF (BND) – Assets under management: $316.3 billion
Below are the 10 largest active ETFs.
- JPMorgan Equity Premium Income ETF (JEPI) – Assets under management: $31.8 billion
- Dimensional US Core Equity 2 ETF (DFAC) – Assets under management: $25.14 billion
- JP Morgan Ultra Short Income ETF (JPST) – Assets under management: $22.2 billion
- PIMCO Enhanced Short-Term Maturity Active ETF (MINT) – AUM: $10.51 billion
- JPMorgan Nasdaq Equity Premium Income ETF (JEPQ) – AUM: $9.93B
- Dimensional U.S. Market Cap Value ETF (DFUV) – Assets under management: $9.67 billion
- Dimensional US Target Value ETF (DFAT) – Assets under management: $9.24 billion
- Avantis US Small Cap Value ETF (AVUV) – AUM: $9.17B
- Dimensional U.S. Stock ETF (DFUS) – Assets under management: $8.35 billion
- ARK Innovation ETF (ARKK) – Assets under management: $7.8 billion
