Indexing to the S&P 500: the strategy dividing investors

Indexing to the S&P 500 or the MSCI World: the strategy that promises to beat 90% of managers

In the world of investing, there is a maxim repeated like a mantra: efficient market theory and experience show that the S&P 500 has the greatest alpha of any stock market, and that indexing beats almost all active managers. Those seeking diversification can go for the MSCI World, made up of 65% US companies and 30% companies from satellite countries of the same. You should never choose ETFs from different regions, as they are not safe markets. This is the starting point of an intense debate that has pitted supporters of passive management against those who consider it a strategy for conformists.

The core argument: indexing as the only rational option

The starting thesis is clear: if you cannot beat the index and don't want to overthink it, the best thing is to index. Defenders of this position argue that the S&P 500 is the index with the best historical performance and that index funds beat the vast majority of active managers. They also point out that if the market falls, indexed investors will add to their positions according to their rules instead of rushing to withdraw their money, which provides stability to the market. Right?, asked the author of the opening message with a knowing tone, hinting that blind faith in indexing also has its cracks.

The critical voices: 'Indexing is for mediocre conformists'

Against this view, dissenting voices were quick to emerge. "Indexing is a good option if you're a mediocre conformist," one participant declared, summing up the feelings of those who consider passive management a pre-emptive surrender. Others pointed out that the Nasdaq has historically beaten the S&P 500 and that, in certain periods of low interest rates, small caps offer higher returns because they can finance themselves more easily. The discussion turned to comparing indices: the S&P 500 is not a stock market, but an index, and the Nasdaq has outperformed the S&P in certain periods. Nuances about the P/E ratio also came up: while the Nasdaq has a P/E of 28, the S&P 500 stands at 22, leading some to combine funds to improve the overall valuation of their portfolio.

Concentration in the 'Magnificent 7': a bubble in the making?

One of the hottest points of the debate has been the growing concentration of the indices in a few companies. "The indexers' party won't last forever, and even the blindest person can see that," one participant warned. According to data cited by a participant, the Nasdaq 100 has 40% in the seven big tech companies, the S&P 500 30% and the MSCI World 20%. For some, this poses a systemic risk: if AI fails to meet expectations or liquidity dries up, the indices could suffer severe corrections. The recommendation of the most aggressive would be to concentrate even further in those seven companies, while the prudent advocate diversifying with other assets.

Gold and bitcoin as safe havens: 'The S&P 500 is good, but gold is safer'

Amid the crossfire came the defence of precious metals. "Gold is better and safer than the S&P 500," one participant claimed, arguing that in scenarios of trade war, pandemic or crisis, gold rises while the S&P 500 falls. Their strategy combines both assets, plus bitcoin. This stance reflects the distrust of a portion of investors towards traditional equities and their search for alternative safe havens.

The role of managers and fees: Vanguard, Fidelity and Amundi

The discussion also covered the ecosystem of index funds. Managers such as Vanguard, Fidelity and Amundi were mentioned, along with platforms like Myinvestor or Renta4, as the preferred options for implementing a passive strategy. However, there was no shortage of criticism of costs: "Name one Nasdaq index fund that charges less than 0.3 in fees," one participant demanded, stressing the importance of net returns. The rise of ETFs was another point of friction: "ETFs are the funds of the 21st century. Sticking with old-style funds is like sticking with a typewriter," one participant argued, although others noted that mutual funds offer tax advantages that ETFs do not.

The future of indexing: an unsustainable snowball?

The conversation turned to the future of the financial system. "Classic capitalism died in 2008. What we have now is a corpse sustained by infinite debt and central bank morphine," one participant declared, predicting a structural collapse. Others, however, argued that the capitalist system tends to grow in the long run and that if the MSCI World fails, money will be the least of our problems. The discussion remained open, with positions ranging from unwavering faith in indexing to the most radical scepticism about the sustainability of the model.

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In the end, the question remains up in the air: is indexing the only rational strategy or a ticking time bomb? Historical data support its performance, but extreme concentration and dependence on global liquidity raise reasonable doubts. As one participant summed it up: "When the MSCI World goes to hell, that really will be the least of your problems."