The Hidden Cost of Index Investing
Investors are always paying hidden costs with their investments. Our Passive Performance Tax™ analysis can help avoid those hidden costs.
Passive investing promises low-cost access to broad markets. However, these portfolios suffer from long-term performance drag due to exposure to companies that are either overvalued or poorly run.
Indexes are not neutral. They systematically allocate capital indiscriminately to:
Overvalued companies
Firms priced well above their intrinsic value
Poor stewards of capital
Management teams that destroy wealth through bad reinvestment decisions, dilution, or inefficiency
The performance drag of these types of companies is illustrated in the chart below.
At Applied Finance, we identify these types of companies and remove them during the portfolio construction process.
Using our forward-looking intrinsic value framework and capital stewardship analysis, we build portfolios that seek to deliver excess returns with less risk by removing the costly exposures embedded in passive benchmarks.
Contact us to learn more about our proprietary Passive Performance Tax™ analysis.