At the same time index inclusions and exclusions, construction flaws in some funds and options strategies capitalizing on the new volatility regime could all be ways to gain an edge, he argues.
Meanwhile, anyone who wishes to avoid the passive bubble should look to the stocks ignored by index funds, Deluard said. Old-school energy names and big tobacco companies are among them.
A lack of buyers is causing a “structural discount in their valuations,” he said -- though investors will need to be patient.
“The ‘index leftover premium’ will be realized over decades, not months,” he wrote.
This article was provided by Bloomberg News.