Are Index Funds a Bubble — Michael Burry Index Fund Hypothesis

  • ‘Lower Costs’ — The costs involving an index fund are comparatively low than that of actively managed funds. Hence, investors can reap the benefits of having lower costs when it comes to investing in an index fund instead of investing in a mutual fund.
  • ‘Lower Turnovers’ — The process of selling and buying securities by the fund managers is known as turnovers. Selling securities often results in capital gains taxes for investors from certain jurisdictions. These capital gains tax charges are usually received by the fund managers.
  • ‘Easiness’ — Index funds are often considered to be very simple and easy to be understood by anybody. An investor can be able to determine the securities held by an index, once he gets familiar with the target index of the index fund.
  • ‘Style Drift’ — When the actively managed funds are not following their described style in order to increase the returns, it is known as Style Drift. Portfolios with diversification as high priority are hugely affected by this.
  • ‘Disadvantage for Arbitrageurs’ — Arbitrageurs are the investors who gain their profits by investing in the market inefficiencies. In order to match the changes in prices and market capitalization of the underlying securities indexes they track, index funds require to be rebalanced periodically.




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