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Is there really such thing as a passive fund? I have a strong feeling that the contents of the index (or at least weights) can still be manipulated. And also t

Is there really such thing as a passive fund? I have a strong feeling that the contents of the index (or at least weights) can still be manipulated. And also that the fees are just moving down the food chain somehow. If you think I'm wrong, just consider that a public company can own stock in another public company. This will all become more obvious when "passive funds" take over more of the market.

DINKDINK 11y ago
>Is there really such thing as a passive fund? To me passive and active are ends of a spectrum which specify how much labor and trading is done with the fund's assets.
kasey_junk 11y ago
I'm not sure I understand what you mean. "Passive" is descriptive of the strategy & nothing more. Those funds are trying to mimic the returns of a particular market segment. If a passive fund argued that a particular market segment had implicit fees & therefore they charged similar, it would still be passive.
- jeffdavis 11y ago
  The article is talking more about the declining average load due to passive funds. If the average load goes down, I'm saying that those fees are probably just moving somewhere else rather than upsetting the industry.
  - nostrademons 11y ago
    It moves into the price discovery mechanism of the market. More people in passive funds => fewer people doing active research on companies => greater likelihood that the market price of a security doesn't reflect the underlying fundamentals of the business => arbitrage opportunities for active traders, as chollida1 pointed out. People will still get phenomenally rich in the stock market, wealth inequality will still increase. The difference is that people have to work for it now, building up their own information advantage, rather than being able to siphon off large fees simply because they went to a good school and talked a fellow alum into hiring them. This is a plus in my book.

DINKDINK 11y ago

>Is there really such thing as a passive fund? To me passive and active are ends of a spectrum which specify how much labor and trading is done with the fund's assets.

kasey_junk 11y ago

I'm not sure I understand what you mean. "Passive" is descriptive of the strategy & nothing more. Those funds are trying to mimic the returns of a particular market segment. If a passive fund argued that a particular market segment had implicit fees & therefore they charged similar, it would still be passive.

jeffdavis 11y ago
The article is talking more about the declining average load due to passive funds. If the average load goes down, I'm saying that those fees are probably just moving somewhere else rather than upsetting the industry.
- nostrademons 11y ago
  It moves into the price discovery mechanism of the market. More people in passive funds => fewer people doing active research on companies => greater likelihood that the market price of a security doesn't reflect the underlying fundamentals of the business => arbitrage opportunities for active traders, as chollida1 pointed out. People will still get phenomenally rich in the stock market, wealth inequality will still increase. The difference is that people have to work for it now, building up their own information advantage, rather than being able to siphon off large fees simply because they went to a good school and talked a fellow alum into hiring them. This is a plus in my book.