The solution would be larger indices referenced by ETF, so that passive investors would buy pretty much &quot;the whole market&quot; and not just a subset of stocks that would end up being overpurchased.<p>But a smaller index has one important benefit, which as an ETF investor is key to me. I do not believe in the ability of a randomly picked asset manager to outperform the market (and I have no way to pick one any other way). An index selects stocks by just one criteria: the market capitalisation. So it will be selling stocks that are on the way down and buying stocks on the way up (as they become big&#x2F;small enough to enter&#x2F;exit the index).<p>Very simple investment rule and good enough in my opinion. This strategy comes with a &quot;tax&quot;: hedge funds are watching stocks about to get in or out of an index and front-run the expected flow of ETF buyers and sellers, which means I leave some money on the table. That&#x27;s the tax I pay for being a lazy investor.