Passive investment funds have become both free riders and absentee landlords, says Charles Hall

Passive investment has become a key driver of global and UK equity markets. From being relatively insignificant 20 years ago it is now a key component. Given that growth in passive investing is likely to be inexorable, it is time we took a step back and consider the implications.

Passive investing has democratised and revolutionised investment for millions of people. Passives have enabled investors to gain access to markets or themes without any need for deep market or company knowledge and at very low cost. They also require little monitoring and remove emotional or compulsive bias. Furthermore, the performance of passive has been consistently greater than most active funds, which has increased the attraction.

However, much like a strangler fig, passive investment has started to dominate its host and there is a real concern that it will end up strangling it. In the US, passive investing is now around 50 per cent of the market and in the UK there are consistent outflows from UK active funds and inflows into passives. Vanguard, one of the largest passive funds, has over........

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