Has the demand for tracker funds gone too far? Certainly, history warns us that investment fashions can end nastily. Think of small caps booming in the 1980s only to suffer a decade of underperformance in the 1990s, or the tech boom and bust, or the mania for credit derivatives in the 2000s that led to the banking crisis.
And there is a reason to suspect that there might come a time when tracker funds should underperform active ones.
Andrew Lo at MIT has proposed a nice analogy to explain why. Investment strategies, he says, work like population cycles in biology. If a species becomes abundant, it depletes its food source, which causes the species to decline. That eventually allows the food source to grow back, which allows species numbers to recover.