Passive Oversight

Readers of this blog will be familiar with the difference between passive and active investing and my preference for low cost index tracking funds, but for one company, this strategy last month turned out to be anything but low cost.

While I wasn't actually copying Bill Gates and reading company reports / financial filings for fun, I did catch this little gem of news yesterday.

Per an 8-K filing, something which is required by law in the US for disclosing a "major event relevant to shareholders", apparently Invesco (a large investment management company) missed the re-balancing date for two of its S&P 500 tracking funds on April 24th costing them $105 million to compensate for the resulting difference in performance:

The Company recently discovered and has corrected an error with respect to two funds: the Invesco Equally-Weighted S&P 500 Fund and Invesco V.I. Equally-Weighted S&P 500 Fund (the “Funds”).

The Funds are passive funds that are managed to track the S&P 500 Equal Weight Index (the “Index”). In March 2020, due to volatility in the equity markets, S&P Dow Jones Indices communicated the decision to delay, and ultimately to separate, the rebalancing dates for its indices and noted some indices would be rebalanced in April and others in June.

The Company noted this delay but not the separation of rebalance dates and omitted rebalancing the Funds on April 24, 2020 when S&P rebalanced the Index.

The Company discovered this omission and rebalanced the Funds on April 29, 2020. The Company will make a contribution to the Funds of approximately $105 million to compensate them for the performance difference that arose from market movements between April 24 and April 29.

Rather a costly mistake by someone there. A whole new meaning to the term 'passive investing' and I wonder if the person responsible was "working" from home. I'm sure a few senior executives weren't too 'passive' about the error when it was brought to their attention.