A Harvard lecturer and a renowned writer Vikram Mansharamani commented thata froth in high-growth tech names has been fueled by the enormous expansion of passive trading, a fear of losing out, and a naïve faith in “celebrity CEOs.”
Now, the author of “Boombustology: Spotting Financial Bubbles Before They Burst,” who created a name for himself spotting market bubbles, claims that another one is poised to burst.
“I believe a passive investing bubble has been growing and may, in fact, be cracking and breaking here,” Mansharamani said on Yahoo Finance’s Future of Finance. “In many areas, flows have driven prices more than fundamentals.” And part of that is due to the tremendous amounts of money that are pouring into some of these indices.”
According to Bloomberg Intelligence, passive investing, which tracks a market-weighted index or portfolio, currently accounts for more than half of all publicly traded equity index funds in the United States. Because of the manner they are managed, the funds have witnessed tremendous growth in part because they charge significantly lower costs. However, Mansharamani, a Harvard University lecturer, claims that passive investing’s disproportionate influence has resulted in price distortions in equities, with the market increasingly dominated by capital flows and momentum-driven algorithms.
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