Datadog went public on Thursday and instantly hit a $10 billion valuation, becoming the fourth cloud software debut to reach that level this year.Technologyread more
Blackstone Executive Vice Chairman Tony James says he's less optimistic now than before that the U.S.-China trade war could be resolved, but even a smaller deal could help...World Economyread more
There are challenges with Iran, North Korea, the Afghan Taliban, Israel and the Palestinians — not to mention a number of trade pacts.Politicsread more
In perhaps Buffett's first televised profile, he explained a method of investing that prioritizes bargains and makes use of an occasional baseball analogy.Marketsread more
The massive market transformation this month that some on Wall Street called a "once in a decade opportunity" might have just been a one-off technical move because of taxes.Marketsread more
A 58% majority of registered voters express unease about voting for Trump, but slightly more say the same about Joe Biden and Bernie Sanders, while Elizabeth Warren fares only...Politicsread more
A temporary airspace closure forced flights coming into Dubai from Australia, Singapore and India to be diverted to nearby airports.Airlinesread more
Schiff had previously shied away from calling for impeachment, but his comments on CNN's "State of the Union" indicate his stance has shifted.Politicsread more
As the home to major companies such as Garmin, Sprint, H&R Block and Russell Stover Chocolates, plenty of business travelers find themselves in Kansas City for work. Here's...Travelread more
The United States aims to avoid war with Iran and the additional troops ordered to be deployed in the Gulf region are for "deterrence and defense," U.S. Secretary of State...Politicsread more
Investors are asking how the world's third-largest defense spender could have left itself so vulnerable and what that means for the future.Politicsread more
Passive investment strategies have grown in popularity among investors, but they present a "frightening" risk to the markets, warns a Morgan Stanley strategist.
The flow of investment from active management funds to passive investment funds is significant; it increased to nearly $500 billion in the first half of 2017, according to Bloomberg data. Morningstar data revealed investors have pulled an estimated $26.7 billion from Goldman Sachs Asset Management's mutual funds so far this year, the Financial Times reported on Sunday.
Hans Redeker, global head of foreign exchange strategy at Morgan Stanley, is worried by this flow of cash.
"I do not like what I see, because you have to consider when you have people getting more involved with passive investment strategies, the market will be less able to react to minor distortions or minor declines on the fundamentals side. You will not see the market direction. You will see just a continued inflow of funds," he told CNBC's Squawk Box on Monday.
The appeal of passive funds is they generally charge lower fees than active managed funds, which boosts investors' returns. But while this helps individual investors, it is problem for the wider market.
"From an aggregate point of view it is frightening. It means that at one point you will not have the active end in the market to stabilize it. You would have just the passive guys getting into herd mentality," he warned.
Redeker said that investors into passive funds can choose risk strategies allowing them to sell out completely if their investment drops by a certain amount, and this can cause a cascade effect, where small market moves are amplified if passive funds automatically sell off assets.
"What is then going to happen if the equity market is going to hit those (sell) levels on the downside? You can have a cascading effect," he said.
"For the passive investment situation, the passive investor needs to get out, simply because he has hit his 5 percent limit, or 10 percent limit. So this cascading risk needs to be looked at."
Redeker compared this to active managed funds, where the active manager can assess the market and decide if there is a buying opportunity. This can help to stabilize the market when it turns negative.
However, using a passive fund does not rule out using an active fund as well. Laith Khalaf, senior analyst at Hargreaves Lansdown, says clients at his firm use both strategies, showing they are pragmatic and not dogmatic.
"Some passive funds have cut costs significantly, but there are still some more expensive trackers out there so investors still need to do their homework," he told CNBC via email.
Passive and active funds also suit different markets, according to Khalaf. Passive funds work well where it is difficult to outperform the market, such as U.S. large caps, while active funds better serve sectors such as U.K. smaller companies.
"Overall we anticipate the funds market will gradually polarise to low cost passive funds at one end of the spectrum and high performance active funds at the other," Khalaf said.
"The middle ground, inhabited by expensive passive funds and mediocre active funds will become increasingly squeezed."