Share of $16.0 trillion of US equity mutual fund and ETF AUM

Passive funds are the new portfolio insurance... Safe, until they're not!

In 1987, the Dow fell 22% in a single day. What turned a selloff into a crash?

Portfolio Insurance: A 'safe' hedging strategy that backfired. As prices fell, computers dumped more stock, draining liquidity and amplifying the panic.

Fast forward to 2025! The risk looks different, but kind of the same.

Passive funds: ETFs and index products account for 60% of US equity holdings. They feel safe because they’re cheap, diversified, and steady. On the way up, they even dampen volatility!

BUT in a crisis, passive turns mechanical. Outflows force indiscriminate selling across the whole index. Liquidity disappears, and the downturn feeds on itself.

In '87, portfolio insurance was the accelerant.
Today, passive flows could play the same role.

Safe until they're not.