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Advisor Insights

Index-Fund Imbroglio

John Rekenthaler

This issue of Morningstar magazine contains two articles, besides this one, that consider the possibility that the growth of index investing has contributed to corporations’ abnormal profitability. In “Do Vanguard and BlackRock Own Too Much of Corporate America?”, the University of Chicago’s Eric Posner answers, “Yes.” Morningstar’s director of policy research, Aron Szapiro, then considers legislative remedies in “Would Policymakers Target Index Funds?”. Ideally, readers will proceed in that order: Posner first, to establish the case; then Szapiro, to understand the possible Washington responses; then, finally, this article, which complements the other two.

From Industry to Academia
The claim that index fund managers—or, more generally, any institution that invests so widely as to hold multiple stocks across the nation’s industries—are soft on corporate CEOs is, of course, scarcely the first charge to be levied against indexers. Traditional investment managers have disliked index funds ever since they were introduced.

John Rekenthaler does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.