The rise of passive investing has been an increasing problem for many years. It's part of the reason why Bill Ackman moved away from activist investing... because it became near impossible to persuade a passive fund manager to do something even if it means vastly improving the value of one of their holdings. As the superfunds in wealthy countries become ever larger in size and the popularity and accessibility of ETFs increases, so will the amount of money pouring into passive/index funds.
To be fair, one cannot pin market distortions to just passive funds. Yes, it is one of the many causes, but there had been many causes to market distortions well before there was ever such a thing as index/passive funds and even shortselling. Just pure human emotion is enough to distort markets, which is no surprise given what emotions can make investors say and do.
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STX Price at posting:
19.5¢ Sentiment: Buy Disclosure: Held
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