We continue the conversation between Christine Benz, Morningstar’s director of personal finance, and Alex Bryan, Morningstar’s director of passive strategies research for North America, on the topic of the popularity of indexing.
Christine Benz: So, what's the solution [for index front running]? Assume I want to track, say, a small-cap stock index, or I want that type of exposure in my portfolio, how should I address it to not be disproportionately burned by this problem?
Alex Bryan: So, I think there's one or two solutions. Number one, you could just own a total market index, where you're kind of on both sides of these trades, and it's a wash. So, if I own something like the Vanguard Total Stock Market Index, yes, there might be some stocks that go into and out of the S&P 500 that are negatively impacted by that, but I already own them if I own the Total Market Index. So, I think that's one solution.
