In his latest note, the AllianceBernstein strategist argues that the trillions of dollars pouring into index funds aren’t just tracking markets — they are distorting them. Big Tech’s dominance, he says, has been amplified by passive flows that reward size over substance. Investors are funding incumbents by default, steering more capital to the biggest names simply because they already dominate benchmarks.

He calls it a “dystopian symbiosis”: a feedback loop between index funds and platform giants like Apple Inc., Microsoft Corp. and Nvidia Corp. that concentrates power, stifles competition, and gives the illusion of safety. Unlike earlier market cycles driven by fundamentals or active conviction, today’s flows are automatic, often indifferent to risk.

Fraser Jenkins is hardly alone in sounding the alarm. But his latest critique has reignited a debate that’s grown harder to ignore. Just 10 companies now account for more than a third of the S&P 500’s value, with tech names driving an outsize share of 2025’s gains.

“Platform companies and a lack of active capital allocation both imply a less effective form of capitalism with diminished competition,” he wrote in a Friday note. “A concentrated market and high proportion of flows into cap weighted ‘passive’ indices leads to greater risks should recent trends reverse.” 

While the emergence of behemoth companies might be reflective of more effective uses of technology, it could also be the result of failures of anti-trust policies, among other things, he argues. Artificial intelligence might intensify these issues and could lead to even greater concentrations of power among firms. 

His note, titled “The Dystopian Symbiosis: Passive Investing and Platform Capitalism,” is formatted as a fictional dialog between three people who debate the topic. One of the characters goes as far as to argue that the present situation requires an active policy intervention — drawing comparisons to the breakup of Standard Oil at the start of the 20th century — to restore competition.

In a provocative note titled “The Silent Road to Serfdom: Why Passive Investing is Worse Than Marxism” and written nearly a decade ago, Fraser Jenkins argued that the rise of index-tracking investing would lead to greater stock correlations, which would impede “the efficient allocation of capital.” His employer, AllianceBernstein, has continued to launch ETFs since the famous research was published, though its launches have been actively managed. 

Other active managers have presented similar viewpoints — managers at Apollo Global Management last year said the hidden costs of the passive-investing juggernaut included higher volatility and lower liquidity. 

There have been strong rebuttals to the critique: a Goldman Sachs Group Inc. study showed the role of fundamentals remains an all-powerful driver for stock valuations; Citigroup Inc. found that active managers themselves exert a far bigger influence than their passive rivals on a stock’s performance relative to its industry.

“ETFs don’t ruin capitalism, they exemplify it,” said Eric Balchunas, Bloomberg Intelligence’s senior ETF analyst. “The competition and innovation are through the roof. That is capitalism in its finest form and the winner in that is the investor.”

Since Fraser Jenkins’s “Marxism” note, the passive juggernaut has only grown. Index-tracking ETFs, which have grown in popularity thanks to their ease of trading and relatively cheaper management fees, are often cited as one of the primary culprits in this debate. The segment has raked in $842 billion so far this year, compared with the $438 billion hauled in by actively managed funds, even as there are more active products than there are passive ones, data compiled by Bloomberg show. Of the more than $13 trillion that’s in ETFs overall, $11.8 trillion is parked in passive vehicles. The majority of ETF ownership is concentrated in low-cost index funds that have significantly reduced the cost for investors to access financial markets. 

In Fraser Jenkins’s new note, one of his fictitious characters ask another what the “dystopian symbiosis” implies for investors. 

“The passive index is riskier than it has been in the past,” the character answers. “The scale of the flows that have been disproportionately into passive cap-weighted funds with a high exposure to the mega cap companies implies the risk of a significant negative wealth effect if there is an upset to expectations for those large companies.”