Skip to content

The Hidden Dangers of the Great Index Fund Takeover

The Big Three—BlackRock, Vanguard, and State Street—are the most important players in corporate America. Whether they like it or not.

Updated on
relates to The Hidden Dangers of the Great Index Fund Takeover
Illustration: Sammy Stein for Bloomberg Businessweek

If you hold a stock market index fund, congratulations. The S&P 500’s total return was a thumping 31.5% in 2019, and a fund that passively tracks that benchmark delivered almost all those gains, minus a tiny fee—perhaps just 0.04% of assets. Now here’s something you probably weren’t thinking about when you clicked on the box to choose an index fund in your 401(k) or IRA: You were also part of one of the biggest shifts in corporate power in a generation.

The index fund is one of a handful of unambiguously beneficial financial innovations. Before it caught on, investors routinely paid sky-high fees to active stockpickers who often delivered subpar returns. The near-universal popularity of index funds puts them up there with Social Security, Stevie Wonder, and streaming TV.