Mutual Funds Ate the Stock Market. Now ETFs Are Doing It.

There are now more stock market indexes in the U.S. than there are stocks. This remarkable turn of events, which transpired last year, was noted recently by Bloomberg Intelligence analyst (and sometime Bloomberg View columnist) Eric Balchunas and documented in this chart from the latest issue of Bloomberg Businessweek:

This recent explosion in index making is an attempt to accommodate rising demand for exchange-traded funds, which generally need an index to track. It is also, though, part of a long-running trend. Mutual funds were initially intended to make life simpler for investors by narrowing down the many choices offered by the stock market to a few simple, broadly diversified buy-and-hold funds. But in the 1960s, mutual funds began to specialize, and as the stock market began to boom in the 1980s, they multiplied like bunnies. In 1986, the number of funds passed the number of stocks listed on the New York Stock Exchange. In 1998, it surpassed the overall number of domestic listed stocks.1494874530777