A prominent quant investor has reaffirmed his controversial assertion that the rise of passive investing has created systemic risks comparable to historical economic ideologies, citing growing concentration in index-heavy portfolios and declining market efficiency. The claim comes as assets under management in passive strategies exceed $12 trillion globally.
- Passive funds manage over $12.3 trillion globally, with $7.1 trillion in U.S. ETFs alone
- Top five U.S. equity index funds hold stakes in over 2,500 companies, with 70% concentration in the 100 largest firms
- Stock-specific research reports from major banks have declined by 42% since 2019
- Market volatility during earnings seasons has dropped 18% since 2019, according to model analysis
- Active U.S. equity funds saw $18.4 billion in net inflows during Q3 2025
- SEC has initiated a review of index weighting methodologies, with no expected changes before 2026
The quant, known for his macro-driven models and public commentary, has doubled down on his assertion that passive investing has distorted market dynamics to a degree he likened to 'worse than Marxism'—a statement that drew widespread scrutiny in 2024. He argues that the dominance of index-based strategies has led to artificial price stability, reduced price discovery, and diminished incentives for corporate governance, posing long-term risks to capital allocation. Recent data shows that passive funds now manage over $12.3 trillion in assets globally, with U.S.-listed index ETFs alone accounting for more than $7.1 trillion in AUM. The top five U.S. equity index funds collectively hold stakes in over 2,500 publicly traded companies, with 70% of their holdings concentrated in the 100 largest firms by market cap. This level of concentration, according to the quant, undermines the diversification benefits long touted by passive advocates. He further points to a 42% decline in the number of stock-specific research reports published by major investment banks since 2019, correlating with the growth of passive investing. This reduction, he claims, has eroded fundamental analysis and contributed to prolonged mispricing, particularly in mid- and small-cap equities. In backtested models, he demonstrates that market volatility during earnings seasons has decreased by 18% over the same period—evidence, in his view, of reduced informational efficiency. The critique has sparked debate among institutional investors and regulators, with some asset managers pushing for enhanced transparency in index construction. The Securities and Exchange Commission has initiated a review of index weighting methodologies, though no formal policy changes are expected before 2026. Meanwhile, active managers have seen a modest rebound in inflows, with net additions to active U.S. equity funds reaching $18.4 billion in Q3 2025.