Rote Procedure: Wall Street and William Blair

rote procedure: James Golan, co-manager of the William Blair Large Cap Growth Fund LCGNX, -0.10% , opted for Plan B in a recent note to investors on the William Blair Funds website, according to Market Watch. He made the case that the rote procedure used to determine portfolio holdings, with no regard for valuations or earnings prospects, forces managers of index funds to own bad investments along with good ones. Active managers often use one of two basic arguments: Certain types of assets, such as shares of smaller companies or companies in emerging markets, are sufficiently under-researched on Wall Street that a good active manager, backed up by sound analysts, can beat index returns, or else that the way that passively managed portfolios are constructed leaves them at a disadvantage under certain market conditions. Not only that, he said, but funds that track capitalization-weighted stock indexes must put more money into companies that become more expensive: Certain stocks, such as consumer staples, have become momentum stocks even though their growth prospects aren't very appealing. And consider the result for passive investors. That may work for now, but ultimately there will be a reversal. (news.financializer.com). As reported in the news.