Stock sectors with the heaviest amount of passive ownership—by index funds and sector-focused ETFs—fell even more than the broad market during the selloff this year, a study found.
Jun Zhu, a portfolio manager at Leuthold, analyzed data from the early weeks of the rapid market slide prompted by the pandemic.
Stocks with the highest ownership levels by passive funds fell nearly 3 percentage points more than those most likely to be owned by active managers (40.4% versus 37.5%). Ms. Zhu studied the peak-to-trough period of Feb. 19 through to March 23.
“Stocks with high passive ownership in the sectors with the greatest selling pressure underperformed,” she wrote. Examples include financial stocks, real-estate holdings, the energy sector and consumer-discretionary stocks. The sole exception to the rule appeared to be health care, which lost “only” 30.3% during the meltdown period, compared with 60.7% for energy companies or 45.2% for the financial services sector.