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Could passive investing have structural issues?

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Investor Daily

The increase in passive investing in the last 10 years has been phenomenal. Today, passive is up to 37 per cent of total funds under management (FUM) in US equity funds, from less than 20 per cent in 2009. There are fair arguments for this to be the case, of course – notably the fact that passive investing comes with a lower headline fee. When considering compounding, fees can add up over time, particularly if the active manager is not adding value. Notwithstanding that, when investing in a passive index replicator, by definition there is no active alpha; and when you add fees on top, albeit low fees, you are guaranteed to underperform the market.