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Taking Stock of Index Funds
(Note: companies that
could be impacted by the content of this article are listed at the base of the
story [desktop version]. This article uses third-party references to provide a
bullish, bearish, and balanced point of view; sources are listed after the
Balanced section.)
Recently, Morningstar reported that US stock index funds and exchanged traded funds (ETFs) now hold more assets than the traditional actively managed funds, with passive funds making up 50.2% of the US stock mutual fund pie, while actively managed funds made up 49.8%. (1) This uncharted territory has intensified the calls from some very astute investors, including such names as Carl Icahn, Bill Ackman, Seth Klarman, and Michael Burry, that there is an “index fund bubble” that will not end well for investors. The “Big Three” index fund managers include Vanguard with a 51% share of the market, BlackRock with 21%, and State Street Global with 9%. With fees for index funds approaching zero in some cases, it is unlikely new competitors will reduce this concentration.