A profitable and legal way to game the stock market

Recent research shows that hedge funds and trading desks are reaping hundreds of millions at the expense of index funds and ordinary investors. It’s an easy way to game the stock market, and getting easier by the day. The tactic, in some ways, resembles illegal front-running - but in this case, it’s perfectly fine. The traders are simply buying stocks before they’re added to the indexes that, by definition, index funds must track. Two separate pieces of research have indicated the tactic is costing index funds as much as 0.27 per cent in performance each year. By one estimate, it gouges owners of funds tracking the Standard & Poor’s 500 Index to the tune of $4.3 billion a year, a sum that can double or even triple the cost of such investments. The predicament is growing by the day. Index equity mutual funds have grabbed market share in the U.S. every year since 2006 with assets in passive equity products have swelled to $3.7 trillion. Read the full article via Bloomberg (VIEW LINK)