'Index hugging' rampant, says PM Capital

By Tim Stewart
 — 1 minute read

Three quarters of so-called active managers are now "closet indexers" in an investment world that has become increasingly process-driven, says PM Capital's Paul Moore.

Speaking in Sydney yesterday, PM Capital's founder and chief investment officer lamented the dearth of true global stock-pickers in the current investment landscape.

"We've got more and more indexing, more and more ETFs, and that’s probably why there has been a period of volatility," Mr Moore said.


"But the amount of true global stock-pickers in the market has got narrower and narrower," he added.

The investment industry has become much more "process-driven" in the US – and Australia is following suit, he said.

"You’ve got all these fund managers that have tried to 'closet index' so they don’t lose their jobs. Why are we paying them?" Mr Moore asked.

Funds management is becoming polarised, he said, with truly 'active' assets on the one side and passive strategies on the other.

"All the people in the middle [ie, the 'closet indexers'] are going to get creamed," he said.

It is very easy to determine if a fund manager is truly active in their approach to stock-picking, according to Mr Moore.

"All you have to do is ask: How many stocks are there in your portfolio? And the other thing would be: What’s your top ten? Do you own BHP?" he said.

"If you’re actually dressing it up as something it isn't, the only way you’re going to get money in is through sales and distribution.

"I reckon it would be 75 per cent [of fund managers] to be honest. I interview these guys for jobs. I know they’re closet indexers," Mr Moore said.

Considering the 'process-driven' nature of financial services, fund managers are overpaid almost as much as actors and sports stars, he said.

"Ninety per cent of us are redundant. Why do you need a team of analysts to copy the index?" Mr Moore asked.

"But you know what, the first thing you get asked by people is: 'How big is your investment team?'

"[Fund managers have such large teams] because they know it’s the first thing the external people are going to ask. So they’re paying people a fortune to gets assets under management. But they don’t actually do anything – it’s just ludicrous," Mr Moore said.

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'Index hugging' rampant, says PM Capital
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