How passive investing causes overvaluations

Value strategies are key to active investment management, says IG Wealth Management’s Chief Investment Strategist, Philip Petursson. They require analyzing a company’s financial information, assessing future growth potential and coming up with a value based on its capitalization rate (its net operating income divided by its current market value). However, passive investing, in the form of ETFs, simply buys company shares based on the company’s value relative to the overall market. Philip explains how this is causing overvalued companies to become even more overvalued.