Review: Index funds are (still) changing the world
NEW YORK, Oct 15 (Reuters Breakingviews) – For regular investors, the bad old days really were bad. Plenty of people can remember when buying into mutual funds involved paying a so-called load of 8% up front, a huge handicap for the punters in question. Such frictional costs were one impetus behind the idea of cheaply tracking market indexes rather than entrusting savings to expensive stock-pickers.
The revolution was overdue. Academic research had showed that these particular masters of the universe were underperforming broader markets in the early part of the second half of the 20th century. Despite false starts, that insight eventually led to the creation of index-tracking mutual funds from the 1970s and, in the latest incarnation dating back to the 1990s, exchange-traded funds or ETFs. Finance will never look the same again.
The story of how this came about provides the subject…