Show this chart to people who blame passive investing for rising stock market concentration

One of the more popular but sillier criticisms of passive investing is that it has inflated a humongous bubble in large US technology stocks, making the equity market more top-heavy and fragile. Because most major financial benchmarks tracked by index funds are weighted by size, the big just become bigger as index funds are constantly forced to chase performance, bidding up the shares of stocks that are already rising. Or so the narrative-friendly argument goes. However, this completely ignores the basic mechanics of how a cap-weighted index fund actually works — it doesn’t need to buy more Apple or Nvidia just because they’ve gone up, as it already owns them. So if, say, Nvidia doubles again from here, so does the value of the index fund’s holdings. It doesn’t need to buy a single share to remain perfectly in balance. Moreover, it is a distraction from what is truly driving things: This killer chart is from Peter Oppenheimer’s latest Goldman Sachs note on stock market concentration, w

One of the more popular but sillier criticisms of passive investing is that it has inflated a humongous bubble in large US technology stocks, making the equity market more top-heavy and fragile. Because most major financial benchmarks tracked by index funds are weighted by size, the big just become bigger as index funds are constantly forced to chase performance, bidding up the shares of stocks that are already rising. Or so the narrative-friendly argument goes. However, this completely ignores the basic mechanics of how a cap-weighted index fund actually works — it doesn’t need to buy more Ap