Abstract
Index mutual funds and ETFs have seen significant asset inflows over the past decades. What is often overlooked about index fund investing, however, is that investors use these products to build active exposures in aggregate. To empirically explore this conclusion, we analyze the characteristics of the asset-weighted aggregate portfolio of US domiciled US equity index mutual funds and exchange-traded funds whose goal is to track an index other than a total US market index. Our results suggest that this portfolio of index funds is active in nature. This conclusion rests on (1) the non-trivial variability of excess returns relative to the total US equity market, (2) statistically significant style factor exposures, and (3) industry-level asset weights that are not market capitalization proportional to the total US equity market. In other words, index fund investing should not be considered equivalent to passive investing.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
