The rise of passive investing is making markets “less efficient and more fragile”, says Tom Stevenson in The Telegraph. Somewhere between a third and half of equity assets under management are now passive, meaning they are held by funds seeking to track market indexes without trying to beat them. Passive investing offers lower fund manager fees than the active variety.
The problem? Too much passive investing makes for less discerning capital allocation, with money blindly pouring into markets according to “fund flows” and “weightings”. Share prices are thus prone to becoming disconnected from reality – although more inefficient markets do at least open the way for active stock pickers to spot mispricing opportunities and scoop up bargains.
Are ETFs following?
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
-
‘Inheritance tax insurance’ enquiries are soaring – but is it worth it?Premiums for whole of life insurance can run to £5,000 a month to cover a £300,000 inheritance tax bill, with policies costing more the older you take them out.
-
MPs warn over Lifetime ISAs which could leave savers out of pocketThe Treasury Committee has highlighted confusion around the Lifetime ISA withdrawal charge, which risks consumers losing “a significant part of their savings”
-
Is Donald Trump putting the US dollar in danger?Donald Trump's administration sees one of its greatest advantages – the US dollar – as a burden. Gold is the obvious beneficiary, says Cris Sholto Heaton.
-
The British railway industry is in rude health – here's why investors should jump aboardThe railway industry has bounced back from the devastating impact of the pandemic and is entering a new phase of development – and profitability
-
AGMs: a unique selling point for investment trusts that investors should capitalise onOpinion Shareholder meetings aren’t just a regulatory requirement – they are a way to communicate with investors
-
A cyclical case for UK stocksOpinion Depressed margins and relatively low valuations mean the UK market could rally strongly as conditions improve, says Cris Sholto Heaton.
-
Infrastructure investing: a haven of stable growth amid market turmoilFrom booming construction in emerging markets to digital and green transitions, the infrastructure sector offers security, returns and long-term opportunities
-
The costly myth of “sell in May”Opinion May 2025's strong returns for US stocks have once again shown that putting too much weight on seasonal patterns will only make investors poorer, says Max King
-
Who’s driving Tesla?As Elon Musk steps back from government with his eyes on the stars, investors ask if he’s still behind the wheel at his electric-car maker.
-
Investment opportunities in the world of Coca-ColaThere is far more to Coca-Cola than just one giant firm. The companies that bottle and distribute the ubiquitous soft drink are promising investments in their own right.
