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The Slings and Arrows of Passive Fortune

Do criticisms of passive investing have merit?

By Anu R. Ganti

EXECUTIVE SUMMARY

Slings and Arrows of Passive FortunePassively managed assets have grown dramatically since the inception of indexing in the 1970s. Unsurprisingly, some active managers, as well as other critics, have raised questions about the impact of the growth of indexing. The charges leveled at index funds include suggestions that they encourage collusive behavior, that they are poor stewards of their customers’ assets, that they contribute to market bubbles, and that they diminish market efficiency. We offer rebuttals to each of these concerns, and suggest how an eventual equilibrium between active and passive assets under management might arise.

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