The Hidden Index Bubble

Index fund ratio to actively managed funds is correct when index funds and active funds are performing equally. All data suggests that the ratio of active funds is still too high because index funds continue outperforming actively managed funds. There is equilibrium somewhere but we are not there yet.

There are clear errors in this analysis.

Index fund investing strategy is not inflating high market cap stocks relative to low market cap stocks. They are adding the same multiplier to the market cap of every stock in the index.

Active funds are the only ones that can under or overvalue market cap. Index funds follow their lead. Better question is if index funds are putting more money to high market cap stocks than low valued stocks relative to active investors?

You can make sanity checks for index funds, for example compare revenue to market cap ratio of index funds to active funds. Its seems that noting is wrong.

It's possible that valuation of stocks fall little sort of most popular indexes like SP500 may suffer relative to those who get into the index. If that's true, that opportunity for some investors.