Index funds aren't good with capturing deep value and will be at a disadvantage when the Federal Reserve halts its suppression of interest rates, according to Barron's.

Brendan Conway cites AllianceBernstein chief market strategist Vadim Zlotnikov, who says that the Standard & Poor’s 500-stock index (SPY) is built to reflect large-cap U.S. stocks. That means it inevitably reflects cases where investors bid up a given sector. More recently, the trend can be seen in the princely valuations of dividend-paying stocks — a trend that could go on for a while given the Federal Reserve’s suppression of interest rates.

The rise of indexing, ETFs and index futures have had a “pretty significant impact on pricing of individual assets,” Zlotnikov contends.

To read more about Zlotnikov's argument, go to the Barron's article. 

Edited by: Tommy Fernandez


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