FT: What passive investment has done to financial markets

Passive investment, celebrated for its simplicity and loved by users, is causing a stir in the financial landscape. Critics, particularly fund managers, attribute the rise of passive strategies to the industry's fee war and claim it complicates traditional investing. Recent data from Morningstar reveals that passive funds surpassed active ones in net assets for the first time. A study suggests the sedating effect of indexing on the stock market, challenging the efficient markets hypothesis. As passive investment grows, it reshapes the investment process, posing risks and altering the game for investors.

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By Katie Martin

New research bolsters the view that it is undermining the efficient markets hypothesis

Passive investment is a reasonably simple process that generates more than its fair share of bellyaching. Users love it. Rather than poring over spreadsheets to try to beat the broader market, investors from have-a-go punters to big institutions can buy dirt-cheap exchange-listed market trackers and save the bother.

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