Passive Investing Hasn’t Taken Over the World
Ignore the hype. Actively managed money dwarfs the assets in low-cost index funds.
Bloomberg, October 1, 2019
The battle is won, the victor is passive, active management has been defeated.
By now, you surely know that passive indexing has taken over the world. Wall Street quakes at the mere mention of indexers, who devour all in front of them. Active managers, many of whom have since moved on to careers as Wal-Mart greeters or dental hygienists, are becoming as rare as the Northern White Rhinoceros. Once derided as “Bogle’s folly” –indexing’s inventor was Vanguard Group founder Jack Bogle – indexing is now an unstoppable force, taking over everyone and everything in sight. Nothing can survive its voracious onslaught.
Headlines trumpet the new boss: Bloomberg News declared “End of Era: Passive Equity Funds Surpass Active in Epic Shift;” The Wall Street Journal coronation was simply “Index Funds Are the New Kings of Wall Street.”
Or so you might have heard.
There is but one small problem with all of the above: it is pure hyperbole, the grossest of exaggerations, ignoring the broader reality of how most money is actually managed. Those technically accurate but misleading headlines fail to paint a complete picture. The hype about passive taking over the invested world is wildly overwrought.