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How to make money by betting against passive investing

Pity the poor stock fund manager.

Since 2010, U.S. stock funds have been trounced by equity indices such as the S&P 500 Index. It’s gotten so bad that around 88% of active U.S. domestic fund managers lag behind their benchmarks, according to fund researcher Morningstar.

The upshot: Money is flooding out of managed funds into “passive” exchange traded funds (ETFs) that track major indices. Last year, the SPDR ETF SPY, +0.87% an S&P 500 SPX, +0.90% tracker, had inflows of $25 billion, taking its asset base up to $238 billion. Two other S&P 500 trackers, the Vanguard S&P 500 Index Fund VOO, +0.87% and the iShares Core S&P 500 ETF IVV, +0.90% had combined inflows of over $24 billion.

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