What is Jason Zweig talking about when he asks “Have index funds become so popular that they are ruining the financial markets for everyone else?” Have they? Why or why not?

Have index funds become so popular that they are ruining the financial markets for everyone else? These autopilot portfolios, which buy and hold essentially all the securities in a market index without even trying to find the best and avoid the worst, have become the giants of the market. Index funds accounted for 35% of total assets in all stock mutual funds and exchange-traded funds at the end of 2014, up from 25% in 2010, according to Empirical Research Partners, a firm in New York. In the past five years, the investment-research firm Morningstar estimates, investors have pulled $73.6 billion out of “active” U.S. stock funds that seek to beat the market and added $208.8 billion to index funds that seek only to match it.

QUESTIONS: 

1. At the end of 2014, what percent of funds invested in all stock and exchange-traded funds was invested in index funds? How does this compare to 2010? Last year, what percent of U.S. equity mutual funds run by stock pickers underperformed the S&P 1500 Index?

2. How would you explain these numbers?

3. What is Jason Zweig talking about when he asks “Have index funds become so popular that they are ruining the financial markets for everyone else?” Have they? Why or why not?