Wealth is transferred from ordinary folk via the IPO-retirement-fund axis to the plethora of agents involved in the whole scheme, from the employees bashing out code and UX, right through to everyone involved the M&A and IPO and the whole tax / tax agent / government tax agency cadre.
It's not trickledown.
It's deluge-up economics.
At one point this would make index fund investing as a whole significantly less profitable. With all the horror stories we've seen unfold in the last five years, you could begin to suspect that boards actively and knowingly execute this strategy. You can only hope that a money manager would be smart enough to avoid the SoftBanks, Ubers and WeWorks. But I don't know that's a given. Shorting them out of your portfolio isn't an obvious strategy either, due to borrow costs and so on.
Anyone given a significant amount of thought to this?
The problem is, no one has much other choice than to go this route and invest into the "next potential unicorn". With classic stocks stagnating and many government bonds in low to negative interest territory, it's hard to make any noticeable profit.
The way to fix this would be to reform pensions to a government-backed system such as Germany or Austria have - that reduces the amount of "dumb money" in the system.
Uber is part of some indexes; S&P500 isn't the only one. The efficient markets hypothesis is obviously false, although from a distance it's usually a decent approximation.
And in case I'm about to get downvoted for violating the consensus -- 100% of my long-term investments are currently in index funds. But with the growing share of indexed investments, this is a very interesting question.
There are currently trillions of dollars (and growing) following the simple momentum strategy that index funds represent. It almost beggars belief that this is not, and will never, be exploited for gain.
And the other factor is this: if it is skill, do the high-fees still give you a better risk-adjusted return?
Yes. With your standard 2 and 20 fee structure, you don't pay performance fees on anything below 8% returns. Performance fees are where bonuses come from, so anyone coming up short sees capital and employees disappear overnight.
RenTech has a 40+% performance fee on their Medallion fund because it consistently generates 60% returns YoY.
Mine contains 4 funds covering ~2500 global companies.
Philosophy is diversification, broad coverage of both developed and developing markets, with both high-tech niche industries (heavily overrepresented in the Nordics) and global growth companies (overrepresented in the Small Cap index). Been considering specifically adding China, but dislike the political risk and human rights of top leadership. You might argue that the USA is still overrepresented in this allocation.
I was probably underestimating the number of companies covered by this; the Small Cap index alone represents more than 4500 companies. Although I doubt that my funds actually own all of them.
Cost is around 0.3% per year.
Pretty much this. It's so infuriating to watch never-going-to-be-profitable businesses cash out on the backs of people's retirement accounts. It's one thing for a company's 401k to be stuffed with this crap, but when municipalities like CalPERS are investing in these indexes, it's outright criminal IMO.
https://investor.vanguard.com/etf/profile/overview/VTI
Anyone investing in the total market via VTI, ITOT, etc will hold Uber.