The Peak For Passive Funds?

Passive investing is a good thing. Tracker funds — which automatically follow an underlying stock market index, rather than having a fund manager actively pick and choose stocks — have been a major factor in widening participation in financial markets.

They represented genuine and brutal competition for a fund management industry once rife with overpriced active funds that basically did the same thing.

But like all good things, you can have a bit too much of it. 

The perceived risk was that if people just kept pouring more and more money into the biggest stocks in the market, then the sheer fact of size and popularity would matter more than any kind of fundamental valuation. 

Thus we’d be damaging the whole point of the stock market — turning it from a machine for allocating capital efficiently, to one for simply splashing it around blindly.

Let’s start with a quick chat about bubbles. Hedge fund billionaire and philanthropist George Soros came up with the term “reflexivity” to describe how bubbles are formed in markets. Some see it as a fancy name for an obvious concept, but I rather like it.

Soros’s point is that reality and the perception of reality feed off each other, and shape each other. This leads to self-reinforcing loops that in effect, push markets away from what would be deemed a “rational” interpretation of reality.

It’s very clear that “money chasing money” has become the winning investment strategy of our time. 

Momentum investing — pumping money into the world’s hottest stocks, which right now are the AI-related ones — is heading for its strongest two-month performance on record.

It would be ironic if the AI bubble, which is all about delegating our thinking to machines, ended up popping the passive bubble, which is all about delegating our investing to machines.

John Stepek Bloomberg May 27, 2026 

https://www.bloomberg.com/news/newsletters/2026-05-27/will-mega-ipos-mark-the-peak-for-passive-funds

John Stepek

https://www.bloomberg.com/authors/AV8F0VYKcHY/john-stepek


Index Funds Can’t Say No to SpaceX

Matt Levine Bloomberg May 26, 2026

https://www.bloomberg.com/opinion/newsletters/2026-05-26/index-funds-can-t-say-no-to-spacex


If their AI bets go wrong, the whole market could go with them

As of the end of last year, index funds and exchange traded index funds held a combined $30 trillion. Stock picking has become extinct, almost.

https://englundmacro.blogspot.com/2026/04/if-their-ai-bets-go-wrong-whole-market.html


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