By Laura Sanchez
Investing.com – Interesting conversation on Twitter (NYSE:) between Elon Musk and Cathie Wood on passive investing, about the growing power of index funds.
It all started when private equity investor Marc Andreessen warned that companies like BlackRock (NYSE:) had power in many corporations due to the voting rights associated with their huge passive vehicles.
Tesla CEO (NASDAQ:) Mr. Musk, responded to the thread by saying that passive investing “has gone too far.”
For her part, Ms. Wood, founder of Ark Investment Management, picked up the conversation by pointing out that investors in S&P 500 trackers missed Tesla’s big gains before it was included in this index.
“History will mark the accelerated shift to passive funds over the past 20 years as a massive misallocation of capital,” Wood added.
Cathie Wood is one of the most prominent active managers, but he’s had a rough year, with his flagship fund, the ARK Innovation ETF, plummeting nearly 45%. At the same time, Tesla’s weight in many major benchmarks means that indexing pioneer Vanguard Group and BlackRock are the electric vehicle maker’s second and third largest shareholders after Musk, reports Bloomberg.
The debate over the risks of indexing has accelerated in recent years, with passive funds taking market share from their active rivals.
Their lower costs, combined with doubts about the ability of most discretionary managers to beat the market, are behind this change.