The Index Fund Bubble

Index funds are causing concern over their potential effect on the integrity of the stock market. Some have compared them to the collateralized debt obligations that caused the 2008 global financial crisis. The perceived concern is that index funds affect price discovery and market efficiency, potentially leading to incorrect pricing. Ben Felix, a portfolio manager, debunks this idea by explaining that prices are set through trading, and if index funds are the only entities trading, it could cause issues. However, he also explains that the figure of index funds owning roughly half of fund assets is misleading, and index ownership of the global market is actually still relatively small.