A 20-minute watch. 

In our latest Octo Selectors Series video interview, Rathbones’  David Coombs outlines how passive funds reward bad management, and explores the big global themes that will fuel future investment growth. 

While stressing he is not a “passive hater”, the multi-asset head talks to Gary Shepherd about the real systemic impact of ETFs on markets.

“If I look at a lot of the companies I own today, the top five shareholders typically will include Vanguard and BlackRock, and if it’s in the UK it might include L&G and others,” he explains.

“Philosophically, that feels wrong in the equity world because if we all become passive investors and buy the FTSE 100, then every CEO is going to see money flowing into their stock, see stocks rising and they getting paid better bonuses just because everyone is buying in irrespective of the quality of or their achievements and that fundamentally goes against what capitalism is”.

Within fixed income, the concern is more about illiquidity: “If ETFs grow exponentially that’s fine while money is flowing into those asset classes, but what happens when money flows out? You’re going to be a forced seller.”

In a wide-ranging discussion, David also talks about how he is investing, the move to direct rather than multi-manager investing, and why investors no longer fear going global.