Half of US stock fund assets are now invested in index funds
If the allocation of assets to index funds approach 100%, wouldnt that distort the prices of stocks? Instead of the price reflecting the fundamentals of the business and earnings, it would simply reflect how the index is moving. A bad company with a dying business would not decline in price because money was flowing in its index.<p>And active managers would not short dying businesses if they realize <i>everyone else</i> was blindly plowing money to it because it belonged to an index. Thus worsening the situation. The price of a stock is no longer “efficient” and not a reflection of the information available to the entire market.<p>Personally I wish index funds were abolished, forcing everyone to pick and choose the companies they think will flourish or fail.