{"id":1120,"date":"2025-12-06T15:53:01","date_gmt":"2025-12-06T15:53:01","guid":{"rendered":"https:\/\/microvibenews.com\/?p=1120"},"modified":"2025-12-06T15:53:01","modified_gmt":"2025-12-06T15:53:01","slug":"quant-who-said-passive-era-is-worse-than-marxism-doubles-down","status":"publish","type":"post","link":"https:\/\/microvibenews.com\/?p=1120","title":{"rendered":"Quant who said passive era is \u2018worse than Marxism\u2019 doubles down"},"content":{"rendered":"

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Inigo Fraser Jenkins once warned that passive investing was worse for society than Marxism. Now he says even that provocative framing may prove too generous.<\/p>\n

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In his latest note, the AllianceBernstein strategist argues that the trillions of dollars pouring into index funds aren\u2019t just tracking markets \u2014 they are distorting them. Big Tech\u2019s dominance, he says, has been amplified by passive flows that reward size over substance. Investors are funding incumbents by default, steering more capital to the biggest names simply because they already dominate benchmarks.<\/p>\n

He calls it a \u201cdystopian symbiosis\u201d: a feedback loop between index funds and platform giants like Apple Inc., Microsoft Corp. and Nvidia Corp. that concentrates power, stifles competition, and gives the illusion of safety. Unlike earlier market cycles driven by fundamentals or active conviction, today\u2019s flows are automatic, often indifferent to risk.<\/p>\n

Fraser Jenkins is hardly alone in sounding the alarm. But his latest critique has reignited a debate that\u2019s grown harder to ignore. Just 10 companies now account for more than a third of the S&P 500\u2019s value, with tech names driving an outsize share of 2025\u2019s gains.<\/p>\n

\u201cPlatform companies and a lack of active capital allocation both imply a less effective form of capitalism with diminished competition,\u201d he wrote in a Friday note. \u201cA concentrated market and high proportion of flows into cap weighted \u2018passive\u2019 indices leads to greater risks should recent trends reverse.\u201d\u00a0<\/p>\n

While the emergence of behemoth companies might be reflective of more effective uses of technology, it could also be the result of failures of anti-trust policies, among other things, he argues. Artificial intelligence might intensify these issues and could lead to even greater concentrations of power among firms.\u00a0<\/p>\n

His note, titled \u201cThe Dystopian Symbiosis: Passive Investing and Platform Capitalism,\u201d is formatted as a fictional dialog between three people who debate the topic. One of the characters goes as far as to argue that the present situation requires an active policy intervention \u2014 drawing comparisons to the breakup of Standard Oil at the start of the 20th century \u2014 to restore competition.<\/p>\n

data-srcyload <\/p>\n

In a provocative note titled \u201cThe Silent Road to Serfdom: Why Passive Investing is Worse Than Marxism\u201d and written nearly a decade ago, Fraser Jenkins argued that the rise of index-tracking investing would lead to greater stock correlations, which would impede \u201cthe efficient allocation of capital.\u201d His employer, AllianceBernstein, has continued to launch ETFs since the famous research was published, though its launches have been actively managed.\u00a0<\/p>\n

Other active managers have presented similar viewpoints \u2014 managers at Apollo Global Management last year said the hidden costs of the passive-investing juggernaut included higher volatility and lower liquidity.\u00a0<\/p>\n

There have been strong rebuttals to the critique: a Goldman Sachs Group Inc. study showed the role of fundamentals remains an all-powerful driver for stock valuations; Citigroup Inc. found that active managers themselves exert a far bigger influence than their passive rivals on a stock\u2019s performance relative to its industry.<\/p>\n

\u201cETFs don\u2019t ruin capitalism, they exemplify it,\u201d said Eric Balchunas, Bloomberg Intelligence\u2019s senior ETF analyst. \u201cThe competition and innovation are through the roof. That is capitalism in its finest form and the winner in that is the investor.\u201d<\/p>\n

Since Fraser Jenkins\u2019s \u201cMarxism\u201d note, the passive juggernaut has only grown. Index-tracking ETFs, which have grown in popularity thanks to their ease of trading and relatively cheaper management fees, are often cited as one of the primary culprits in this debate. The segment has raked in $842 billion so far this year, compared with the $438 billion hauled in by actively managed funds, even as there are more active products than there are passive ones, data compiled by Bloomberg show. Of the more than $13 trillion that\u2019s in ETFs overall, $11.8 trillion is parked in passive vehicles. The majority of ETF ownership is concentrated in low-cost index funds that have significantly reduced the cost for investors to access financial markets.\u00a0<\/p>\n

In Fraser Jenkins\u2019s new note, one of his fictitious characters ask another what the \u201cdystopian symbiosis\u201d implies for investors.\u00a0<\/p>\n

\u201cThe passive index is riskier than it has been in the past,\u201d the character answers. \u201cThe scale of the flows that have been disproportionately into passive cap-weighted funds with a high exposure to the mega cap companies implies the risk of a significant negative wealth effect if there is an upset to expectations for those large companies.\u201d<\/p>\n<\/div>\n

#Quant #passive #era #worse #Marxism #doubles<\/p>\n","protected":false},"excerpt":{"rendered":"

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