WASHINGTON, D.C.—Benjamin Schiffrin, Director of Securities Policy, issued the following statement in connection with Better Markets’ new Report, “Popularity of Index Funds is Both a Blessing and a Curse”:
“Index funds are widely regarded as one of the most successful innovations in modern finance. They offer retail investors the benefits of diversification while charging much lower fees than actively managed funds. They also consistently outperform actively managed funds, which is probably why investors have poured $3 trillion into index funds over the last five years while withdrawing $1.4 trillion from active funds. Yet the popularity of index funds has allowed the three main index fund managers to accumulate enormous power, which has the potential to harm investors.
“BlackRock, Vanguard, and State Street constitute the ‘Big Three’ index fund providers. The Big Three manage over $23 trillion in assets, and 75% of those assets under management are in index funds. The result is that the Big Three control over 20% of the votes on the S&P 500. This concentration of ownership gives these firms unprecedented power in the market. As a result, as noted in our report, Harvard Law School Professor Einer Elhauge has written that concentrated ownership presents the greatest anticompetitive threat of our time.
“This is the paradox of index funds. Index funds have provided enormous benefits to investors. They offer lower expenses and greater returns. But as investors have realized the benefits of index funds, they have become enormously popular, and their very popularity has led to index fund concentration that now poses risks. Policymakers must find a way to guard against these risks while preserving investors’ ability to benefit from these funds.”
You can find the report here.
###
Better Markets is a non-profit, non-partisan, and independent organization founded in the wake of the 2008 financial crisis to promote the public interest in the financial markets, support the financial reform of Wall Street and make our financial system work for all Americans again. Better Markets works with allies—including many in finance—to promote pro-market, pro-business and pro-growth policies that help build a stronger, safer financial system that protects and promotes Americans’ jobs, savings, retirements and more. To learn more, visit www.bettermarkets.org.
