This is a common outcry from the financial industry and investors alike in reaction to the rapid rise of “passive” index funds and exchange-traded funds (ETFs), which now have about $5 trillion in assets in the US. Investors have an understandable tendency to see passive investing as a bunch of robotic investors putting money into robotic funds run by robots.
But if you examine all the aspects of passive investing—from the index construction to the usage to the management of the funds—there isn’t a whole lot robotic about it. In fact, it involves a lot of human decision making. Here are five ways “passive” is actually active.
