Passive investing now controls nearly half the US stock market

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Market share for passively managed funds has risen to 45 percent, up a full point from June 2018, according to data this week from Bank of America Merrill Lynch.

Passive investing has now taken over nearly half the stock market as more investors shun stock-pickers and flock to index funds.

At the beginning of the bull run, active had a nearly 3 to 1 advantage over passive in U.S. equity funds, according to Morningstar. That gap began to narrow significantly in 2012 and has come down sharply since. Critics of the index funds say they are too susceptible to the changes in a few market-moving stocks, virtually guaranteeing that investors won't generate alpha, while also potentially posing liquidity risks in times of market stress.Indexing has gained market share in fixed income broadly including both high-grade and high-yield funds, according to the BofAML data.

 

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