Passive Dominance, Active Opportunity
Passive now commands the majority of assets under management — north of 55% of the U.S. funds market. But that dominance has quietly introduced some distortions, ones that don’t show up in expense ratios or fund fact sheets. At its core, index investing is institutionalized herd behavior: every dollar flowing into an index fund buys the same stocks, in identical proportions, alongside every other dollar tracking that benchmark. When the herd was small, that didn’t matter much. Now that the herd is the market, those distortions are harder to ignore. Here are three passive pitfalls every investor should understand, and where disciplined active management may help fill in the gaps.