The Pros and Cons of Index Investing

An academic paper has recently ignited the debate over the value of index investing

John Rekenthaler 25 September, 2017 | 11:06AM

There will always be arguments against indexing. If passive funds never existed, traditional fund managers would be collecting an additional $40 billion in annual fees: roughly speaking, $5 trillion held by index mutual funds and exchange-traded funds times 0.8% for actively managed funds' expense ratios.

An academic paper on the topic by four professors, Miguel Anton, Florian Ederer, Mireia Gine, and Martin Schmalz, has attracted much media attention for joining the fierce debate over passive investing.

The paper is entitled Common Ownership, Competition, and Top Management Incentives,and originates from the European Corporate Governance Institute and the University of Michigan.

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About Author

John Rekenthaler

John Rekenthaler  John Rekenthaler is vice president of research for Morningstar.

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