Trillions Of Dollars In Index Funds Are Distorting The S&P 500

Investors who poured trillions of dollars into index funds on the conviction that no one can beat the market may actually be making it easier to do just that.

All that dumb money could be offering wily stock pickers a chance to buy smaller companies on the cheap, according to new research.

Academics have shown that passive flows into the S&P 500 over the last two decades disproportionately pumped up prices of its largest members — paving the way for small companies in the benchmark to eventually outperform.

That may seem like a wild idea to anyone on Wall Street who witnessed the relentless rise of the megacaps in recent years. But the argument is that passive flows ultimately make the S&P 500’s small members too cheap relative to the big. Read more…..


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At Monday’s open, Tesla will enter the S&P 500 with a 1.69% weighting in the index, the fifth largest. CNBC’s Phil LeBeau joined “Squawk Box” on Monday before the open with a look at the stock’s volatility and the next big catalyst for Tesla shares.

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