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Index Funds Need Better Gatekeepers

FYI: The giants of passive investment need to get more active.

Marble mining company ArtGo’s 3313 -8.20% Hong Kong-listed shares fell 98% Thursday after index compiler MSCI, MSCI 0.92% in a rare U-turn, dropped its plan to add the company to its indexes. MSCI said the decision followed further analysis and feedback from market participants about the stock, which had soared 3,800% this year. A Heard on the Street column Wednesday may have helped concentrate minds.

The brutal reaction—$5.7 billion evaporated in a matter of hours—reflects how important the compilers have become as trillions of dollars pour into index-tracking funds globally. Yet these companies have been slow to shoulder their newfound responsibilities as the de facto regulators of capital flows.
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