Index Funds: Why Passive Investing Wins

Nothing threatened active fund managers more than passive index investing and the reach for yield under Bernanke & Yellen.  The closure of hedge funds and other active money managed businesses tied to the 1% is the collateral damage done by the redistributive regime under Obama and progressive thought in general.  This partially explains upbeat trends throughout the Dow; people expected better executive performance under Republican stewardship.  So far, this has paid off, but active fund managers continue to underperform.

Throughout 2017, more money flowed into passive indices than active fund managers. Passive index funds simply buy stocks that qualify for inclusion into a specific benchmark.  Some simply follow the S&P 500.

Because index funds threaten the traditional model of active fund management, they continue to get a bad rap.  Since 2008 on, the difficulty of any active manager gaining market share dropped considerably.  Passive index funding works in a different direction, yet possess dramatic scale that helps ordinary working citizens source their retirement with great results.  Passive management through index funds benefits from economies of scale; the more monies they manage, the lower their fees and the more attractive their product.  It breaks the social appeal that traditional rent seeking active managers produced.  The accelerating decline occurred with the Great Recession and has never returned.

What should threaten active managers is that mutual funds and exchange traded funds only account for 12% of the entire American equity market; they can impact the entire U.S. corporate sector easily.  The dirty little Wall Street secret is this, active managers have followed the benchmarks of passive index funding since 2008.  Why?  They’ll get fired if they don’t perform.

Index funds, mutual funds and exchange traded platforms continue to destroy active investors because of size and scale.  They continue to hold the market weight of entire industries.

Innovative technology continues to disrupt, even for the working stiff.

About William Holland

Systematic Theologian/International Relations
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