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Passive investing is ‘worse than Marxism,’ Bernstein strategist claims

What do ETFs and Karl Marx have in common?

That may sound like the setup to a corny joke, but for a research team led by Inigo Fraser-Jenkins, it's no laughing matter. In a note boldly titled "The Silent Road to Serfdom: Why Passive Investing Is Worse Than Marxism," the Bernstein investment strategist sets out to prove that the rise of passive investing is a serious problem for the economy as a whole.

The posited problem with predominantly passive capital markets is that they cannot possibly allocate capital efficiently.

Fraser-Jenkins' favorite type of market for capital-allocation-efficacy reasons is a "capitalist society with functioning capital markets," followed by a Marxist one, followed by a capitalist society with predominantly passive markets.

In the first type, markets "rapidly reallocate capital into expanding and shrinking industries," leading to "superior economic growth." In the second, "at least someone is doing the planning of capital allocation," even if the central planner will likely do a worse job of allocation than investors as a group. In the third, no party is...


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