Do index funds distort the market?

>>1099511
No and no. While index funds do not require any active management by the investors, indices on a whole are still actively managed ie apple and the DOW most recently.

>>1099511
What kind of index funds are those?

>>1099511
People keep making this silly argument against index funds. It doesn't make sense. Index Funds don't distort anymore or any less than regular funds do.

Maybe the market should stop charging so much for nothing

What is 'distorting the market'?

Does 'distorting the market' affect my financial gains?

Does 'distorting the market' affect my gains at the gym?

>>1099562
but some jew with an ivy league degree DESERVES $2 million/year in fees for, on average, making below market returns.

Index funds do not currently distort the market, but it appears likely that they will in the far future. Research on this question is currently being conducted.

Early studies suggest that when/if indexing represents more than 60% of the market holdings, then the market could start to become sufficient inefficient that active trading would outperform the benchmark. This is because as fewer and fewer people make independant buy/sell decisions, market inefficiencies magnify. At that point, an investor has a reasonable prospect of outperforming the index after accounting for costs and fees.

Fortunately, we're no where close to the 60% threshold. After 40 years of the indexing revolution, indexing only represents about 12% of the market's holdings. Absent some mass enlightenment event, it'll be hundreds of years before indexing even approaches the margin where the index strategy comes under scrutiny.

No one alive today will ever live to see the death of EMH or indexing. Until then, indexing will remain the best strategy for you, your children, your grandchildren, and probably your great-grandchildren as well.

>>1099901
>indexing only represents about 12% of the market's holdings
This. There is only a small minority of people that are both lazy and stupid.

Has anyone considered that the money in ETFs may be a minuscule proportion of total capital in the market?

>>1099908
>Has anyone considered that the money in ETFs may be a minuscule proportion of total capital in the market?
As I explained above, it's not miniscule (about 12%) but you're correct that its not enough to change the dynamics of the market.

>>1099901
>At that point, an investor has a reasonable prospect of outperforming the index after accounting for costs and fees.
No because active funds that already exist would constantly be arbitraging away any inefficiency anyway. Your post implies that there would essentially be a "gap in the market" that people could exploit. This ignores the reality that no matter how big index funds become, active funds will still be arbitraging away any price inefficiencies.

>>1100106
It's legit in the sense that the company does exist, any Canadian should be familiar with them. They own the Ski-Doo/Sea-Doo brands.

>>1100106
It's one person posting it. No, it is not at all legit.

>>1099983
>No because active funds that already exist would constantly be arbitraging away any inefficiency anyway. Your post implies that there would essentially be a "gap in the market" that people could exploit. This ignores the reality that no matter how big index funds become, active funds will still be arbitraging away any price inefficiencies.
You missed the point. Currently, active trading does indeed arbitrage away market inefficiencies. This is the basis of EMH, regardless of the flavor you believe in. And its also the basis for why indexing works today and will continue to work for a long time into the future.

Active trading fails today because the market inefficiencies are small, because they are quickly arbitraged away, and because there are costs to finding and exploiting them.

But eventually, perhaps, there will be so much money following the benchmark that the pool of active traders will become a minority. This would naturally make market inefficiencies larger, and would decrease the potential arbitrage dollars that make them disappear. In addition, technology and informational advances will make it cheaper to exploit these inefficiencies in the futures (just as HFT does today, compared with pit trading). So, in theory, there will come a point when it might be more profitable on a risk-adjusted basis to chase the inefficiencies than to track the benchmark.

That's the theory, at least. As I said above, there needs to be a lot more research on this.