The ASX last week released a study based on a survey of almost 4500 people, showing that Australians are among the most likely in the world to own shares outside superannuation, ahead of economies such as the UK and Germany. The exchange operator estimates about 2.8 million Australians own ETFs, roughly double the number since 2020.
ETFs offer low-cost diversification, but their rapid growth has prompted concerns about market distortion. Jarden analyst Matthew Wilson argues that passive investing creates a self-reinforcing loop: as index funds buy more of the largest stocks, those stocks rise, prompting further buying. "The more you buy, the more they go up, so the more you buy," Wilson said. "You create this loop that feeds on itself."
Wilson points to a "sustained and dramatic" shift in the share registers of Australia's big four banks, with passive funds increasingly replacing retail investors. He says this has stretched the "fundamental valuation" of Commonwealth Bank, divorcing its market price from underlying financial performance. The decline of active stock pickers, he warns, means there is little "price discovery" — the process of assessing a company's true value.
Others disagree. Chris Brycki, chief executive of online investment adviser Stockspot, which places customers into ETFs, argues that the rise of passive money has made markets more efficient. "The 'dumb money' has all been sucked up by ETFs and now only the sharks are left at the poker table," he said, suggesting professional investors must now compete more fiercely on skill.
The debate is difficult to settle definitively, with multiple factors driving daily share prices. But the shift in how Australians invest is clear: instead of picking individual stocks or relying on active fund managers, more people are channelling money into passive funds that track entire indexes. While this may distort prices for some large companies, it also gives retail investors broader diversification — a development many see as positive.