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.And active managers would not short dying businesses if they realize everyone else 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.Personally I wish index funds were abolished, forcing everyone to pick and choose the companies they think will flourish or fail.