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"In a world with only passive investors, capital would only flow into large companies and not necessarily into good, promising, or efficient companies. Even in a centrally planned economy, capital is likely to be distributed more efficiently.

Fortunately, this state has not yet been reached."

Professor Dr Bernd Meyer, Chief Investment Strategist & Head of Multi Asset
Berenberg Markets, Focus, 05 May 2021

"In a world with only passive investors, capital would only flow into large companies and not necessarily into good, promising, or efficient companies. Even in a centrally planned economy, capital is likely to be distributed more efficiently. Fortunately, this state has not yet been reached."

(...)

"Liquidity in the market is increasingly concentrated on a few, highly capitalised listed companies. It is also shifting more and more from opening to closing. The closing auction accounted for a remarkable 7.5% of daily volume in 2018, up from 3.1% in 2010, partly because the closing prices of tracked indices are the benchmark for passive index providers. Consequently, they try to make as many transactions as possible in the closing auction to minimise tracking error. Conversely, liquidity at the opening has deteriorated. Ultimately, the growth of indexing and ETFs not only shifts trading, but can also distort closing prices."

 

These are two excerpts from Berenberg Capital Markets View, Focus, Professor Dr Bernd Meyer's report dated May 5, 2021, "Passive investments change market structure and market behaviour".