Wall Street Rebels Warn of ‘Disastrous’ $11 Trillion Index Boom
To critics of the $11 trillion passive boom, active management is the original form of ethical investing -- and time is running out to save it from the indexing onslaught.
“On a societal basis, it’s potentially disastrous,” says Michael Green, chief strategist at Simplify Asset Management, referring to the passive frenzy. “There’s an impending crisis that requires people to make changes.”
Fifty years since the first fund was created to mimic the moves of an entire market, naysayers fear the industry is now so big it threatens the capitalist social order.
Yes, it lowered costs, brought investing to the masses and improved returns for many. But the dark side according to the critics: It’s funneling money to undeserving businesses, distorting price discovery and intensifying volatility.
“Markets are ultimately not about funding someone else’s retirement but instead about allocating capital efficiently within an economy and creating the signals that encourage investment in the better companies,” says Green.
His fears over the demise of stock picking are shared by a vocal contingent in full knowledge they’re likely fighting a losing battle.
Inigo Fraser Jenkins, head of global quantitative strategy at Sanford C. Bernstein, once declared passive investing to be worse than Marxism. Michael Burry of “The Big Short” fame tweeted that “passive investing’s IQ drain” is fueling a stock bubble. Yves Choueifaty, a Frenchman known for his $10 billion “anti-benchmark” strategies, once called it “completely toxic.”