Passive funds are becoming so popular that they’re starting to influence the price of securities rather than merely reflect them, says Joe Sirdevan, CEO of Toronto-based Galibier Capital Management.
Sirdevan said that since index funds grow as a proportion of investment dollars at work, their buying power is beginning to have an outsized influence on markets.
“They’ve gone from being price takers to being price makers,” he said.
This trend, which has been gathering steam for over 30 years, could lead to volatility that attentive investors could take advantage of, he pointed out. The factors that drive prices up could suddenly reverse themselves, and drive prices back down.