I don’t know if you remember what you were doing in the summer of 2019? I do. I was hiking the Via Spluga, an ancient Alpine trading route that runs from Switzerland into Italy. Occasionally, I’d pull out my phone to check directions, taking a sneaky look at how markets were doing at the same time. Talk was of a trade war between the US and China, but the impact on stocks was muted. In the time I walked 40 miles, the market barely moved. Over the whole month of August, the S&P 500 was down 1.8%, slightly worse than an average August, but nothing to write home about.
Yet under the surface, one of the most profound shifts in market structure was taking place.
Sometime in August 2019, the amount of money invested in passive investment vehicles – funds that simply track indices like the S&P 500 – eclipsed the amount of money in actively managed funds for the very first time.
The moment was years in the making. Money had been pouring out of active US funds and into passive funds for a long t…