Passive Aggressive: Index Fund Assets Are More Active than They Look

Index funds are not managed passively. And trade volume data tell us they’re not always used passively. Three index fund ETFs—an S&P 500, Invesco’s QQQ, and a Russell 2000 —each land in the top 10 of highest average daily trade volume for US-listed equity securities in 2023. It strains credulity that this trading activity represents buy-and-hold investors establishing long-term positions in these strategies. Many of these trades refect investor expectations for the market. For example, investors buying the Russell 2000 ETF may have a bullish view on small cap stocks.

This is something for investors to keep in mind when encountering stats about the rise of indexing—the proportion of assets under management in index funds makes the market seem more passive than it really is.

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Robert J. Pyle, CFP®, CFA, AEP® founded Diversified Asset Management, Inc., in 1996 to provide personalized, comprehensive wealth management services to successful individuals, families, single women, and business owners. His specialty is addressing the complex financial needs of self-employed professionals, corporate executives, and small-business owners. Our disclosure can be found here. The views, opinion, information, and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc. Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting, or tax advice.