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 reflect 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.
Chart Toppers
Top 10 US-listed equity securities by trade volume, January 1, 2023–September 12, 2023
In USD. Source: Dimensional using data from Morningstar and Bloomberg.
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