Home Business Active v. Passive? Why It’s Not That Simple Anymore

Active v. Passive? Why It’s Not That Simple Anymore


By late 2019, passive strategies had officially swallowed up more than half of publicly traded assets in U.S. equity funds. The share of passive strategies in areas like non-U.S. stocks or bonds has yet to surpass that of active money, but the same trend is unfolding. Used by both institutional and retail investors, index funds are a big reason why more than half of all Americans are invested in the stock market today, a bigger share than other rich countries. Companies such as BlackRock Inc., the world’s biggest asset manager, have also become the largest shareholders in many U.S. corporations, leading to much handwringing about the potential dangers of the approach. Concerns range from stock price volatility to the inefficient allocation of capital toward companies that have the big weightings in an index. Another worry is that index approaches could delay a shift to so-called ethical investing if investment managers neglect their traditional role as powerful company watchdogs.

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