Are index funds becoming too popular?

By Sam Instone - July 23, 2018

Index funds are a very efficient way to invest.

And investors can gain exposure to a large number of securities at a very low cost.

So, what’s the problem?

Passively managed funds have grown in popularity in recent years.

Some argue we may be heading for an indexing bubble.

Should investors be worried?

Will this popularity adversely affect the overall market?

Passive investing, index funds, exchange-traded funds have been growing at a pace that has far outstripped the growth of traditionally actively managed funds.

They are far less popular.

But this is changing fast.

Because the odds of a portfolio of index funds outperforming one of actively managed funds is strikingly high.

On average the cost of an actively managed fund is 2.45%pa, compared to 0.41%pa for index funds.

This is before all the other associated costs.

It's not surprising Wall Street doesn't favour them.

Are the fears surrounding passives overblown?

Probably.

Frankly, they are being fanned by those who are threatened by them.

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