Alternatives to Index Funds

Michael Green believes that the scale of index funds is now adding systemic risk to the market.

Alternatives he discusses?

• The foreign stock one does not solve the problem at all.
• Assets that will become approved in the future for 401k use. If you happen to get lucky and you capture that, then that’s easy street.
• this phenomenon already played out for gold... And that flow of capital into a very small asset class. Just remember how small commodities are. They’re only about 5% of the aggregate financial assets that’s inclusive of oil, that’s inclusive of gold, that’s inclusive of the food you put on your dinner plate, et cetera. We spend a tiny, tiny fraction of our day trying to figure out how to source commodities. And when institutions When the regional investors suddenly woke up and said, Oh, it’s a diversifying asset class. I should try to put 10 to 15 to 20% of my portfolio into this asset class, it caused prices to rise in an anomalous fashion that we then created all sorts of narratives around.
  • We’re running out of oil We’re running out of natural gas. We’re running out of all these things. And that still echoes in the minds of many of your investors or your listeners. I want to first put a foot down and just say, there is no shortage
  • Bitcoin doesn’t even have that capability. It is actually an anti-innovation and anti-technology framework that suggests that humans are incapable of solving their problems and coming up with unique and interesting solutions.
• forcing you and people like you into a system that is preferentially advantaging the largest companies, facilitating much of the behavior that you see and detest in our society, and that is actually driving you towards having crypto in another portion of it. And so just recognize that you are working against your own interests as you do that, even as I can't offer you a meaningfully better alternative.
  • The second point that I would emphasize on this is that you as an investor should be looking within your opportunity set for areas that are not subject to this. The same process that led me to emphasize bonds and tips. You actually want to identify areas that are being negatively impacted by this because it does appear we are headed towards a transition point at which this process could begin to reverse. If that's the case, perversely, many of the features that we take for granted in the market, the outperformance of large caps, the underperformance of small caps could very easily flip themselves quite meaningfully. The narrative, the U.S. large caps and technology are the only place to be could just as easily be replaced as it was in the aftermath of the dot-com.