BE AWARE: Funds Using Their Own Indexes is Not Passive Management!
I had noticed this in battles before, but we've never really dived into it, and that is the idea of what is passive? What really is passive? The bots ETF is looking to replicate the performance of the INDXX Global Robotics and AI thematic index.
The robo ETF is looking to replicate the performance of the Robo Global Robotics and Automation Index. Why is this notable? Both of these indexes were created and both of these firms hired somebody to kind of third party manage an index that they created to manage these funds too. So they've made up an index based on how they wanted to manage the fund, and they're using that as their benchmark.
In the robo case, the index is managed by Veti. In the bots case, it's managed by a firm called INDXX. Essentially what these firms do is you call them up and you say, "Hey, I have this idea for an ETF. I'm not an active manager, but I have this idea and so I'm going to give you all the attributes I want in this ETF index.
Every way I want you, I'm going to create the guy. I'm going to do everything, right? And then all I'm going to do is hire somebody to manage to set index and take into consideration a number of different factors and manage the cash flows. And so I ask, is that truly passive? It's passive in the sense that you're not making active trading decisions and waitings and you have very clear guidelines and rules. It's definitely rules-based, but I would argue it is a rules-based with an active tilt because these firms are creating these indices for their ideas.
They're not going watching because this is what he was saying 20 years ago. Yeah. So I don't consider these true passive because to be truly passive, you're replicating an index that you have no influence over, right? And these are completely influenced by the issuers of these ETFs.
And so I think that this isn't truly passive. And I wanted to point this out as my wild card because I wanted to point out that these firms are actively creating their own benchmarks that they measure themselves to. So I don't know how to have a winner to that, but this gets back to my active management thing. I would rather just have somebody actively manage a portfolio and be honest with me about it.
And so I'm going to throw RQ in there again as a winner in this space because again, this is like you set the rules of the game and you set the bogey and you make it so that you can meet the bogey and then you measure yourself to the bogey you created. And I don't know if I like that so much, but that's how a lot of ETFs work these days.
