“Does that make for a bubble? I don’t believe so,” says Sam Huszczo, who owns SGH Wealth Management in Detroit and who says his clients’ attitudes reflect a lack of concern about a passive-fund bubble. “I haven’t had a single client bring this up. I honestly feel like this is more of a subject in the financial industry. It hasn’t dribbled down to the general public.”
To be sure, index funds and ETFs come with their own shortcomings. Smaller, niche funds can be illiquid during selloffs, making them more volatile as investors rush to trim portfolios. And as Huszczo points out, there are always investors who want to chase outperformance, and for them the higher fees charged by a proven fund manager may be worth it. Most broad-based index funds won’t offer that outperformance.