The hypothesis is that stocks held by more passive investment vehicles, such as ETFs and index funds, will be less affected by frequent trading and therefore more profitable in the long term. Additionally, we can categorize stocks based on their market capitalization. Stocks with larger market caps are more thoroughly analyzed, so the effectiveness of passive ownership strategies may be less pronounced compared to stocks with smaller market caps.

To investigate this, I analyzed the percentage of passive versus active ownership for all stocks in the Russell 1000 index over a 10-year period, with semiannual rebalancing, and divided them into 7 groups each time.

We then compared the performance of stocks based on their normalized passive ownership percentage, weighted accordingly, against an equal-weighted group. There was a slight difference in performance between small-cap (rank 0) and large-cap (rank 6) groups.

Using a squared arithmetic method to accentuate the impact of passive ownership weighting, we found that the performance difference between the groups was still not statistically significant.

Rank 0 equal weighted portfolio versus passive weighted portfolio:
 

Rank 6 equal weighted portfolio versus passive weighted portfolio:
 

Read Part 2 >>> Passive Active Ownership Strategy - Part 2

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