It hasn’t been sunny for passive ETF index investing

I have created two separate charts depicting the stock performance of the SPY (the well-known index ETF that tracks the S&P 500) compared to Nvidia and Microsoft.

One chart covers a 12-month period, while the other spans 24 months.

It is important to consider the starting date and whether one buys, sells, or trades during the given period. However, the main point I want to convey is this:

If you are a dedicated ETF indexer, you somewhat relinquish the right to aspire to, or claim, the returns that a stockpicker might have achieved.

There are times when passive indexing is favorable, but the past two years have not been one of them, as many major indices have remained relatively flat.

Over the past 12 months, the SPY (including dividends) yielded a 6% return, while Microsoft (MSFT) saw a 26% increase and Nvidia (NVDA) recorded an impressive 109% growth.

During a 24-month period starting from June 5, 2021, the SPY generated a total return of 4%, while Microsoft experienced a 36% surge and Nvidia soared by 123%.

Once again, we can manipulate our story and statistics to suit our narrative, but if I had adopted a “buy and hold” and “don’t time the market” approach, Microsoft’s outperformance by a factor of 4-8 times is significant, not to mention the gains one could have made by holding Nvidia.

Interestingly, I have noticed that many ETF enthusiasts often quote and admire investors like Warren Buffett, David Tepper, Ken Griffin, and others. However, it’s worth noting that these individuals are stockpickers, not ETF investors.

Just some food for thought amidst the hypocrisy that I frequently come across.

June 6, 2023

by Rob Zdravevski

rob@karriasset.com.au