A conversation with Nobel laureate William F. Sharpe about indexing

By Daniel Prince , CFA, iShares Index investing was considered anathema to all but a handful of industry insiders when the first index mutual funds launched in the 1970s. Nearly 50 years later, it’s clear these pioneers were on the right side of history. The intervening years have shown that indexing the practice of investing in diversified baskets of stocks or bonds with the aim of tracking the performance of broad markets — can deliver low-cost, efficient market access returns that compare favorably with “active,” or alpha-seeking managers. 1 Asset growth of index funds over the past decade has been astounding: Index mutual funds and index exchange traded funds ( ETFs ) together accounted for 39% of assets in U.S. funds at the end of 2019, up from 18% at the end of 2009. 2 William F. Sharpe , Nobel laureate in economics (1990) and emeritus finance professor at Stanford University , has made innumerable contributions to the practice of investing, including the development of the eponymous Sharpe ratio — a measure of risk-adjusted return — and the Capital Asset Pricing Model (CAPM). He is a founding father and longtime advocate for indexing. His work helped spur the creation of the first index fund, in 1971, for the Samsonite pension fund, run by a Wells Fargo indexing unit. It was later sold to Barclays and became the iShares legacy. Sharpe joined Daniel Prince, head of iShares product consulting for BlackRock’s U.S. Wealth Advisory business and head of U.S. iShares Core ETFs, and Chris Dieterich, editor of iShares.com, for a wide-ranging conversation about how he thinks of his legacy, the early struggles to advance index investing and the influence his work has had on today’s investors. The conversation took place over video call, with Sharpe joining from his home in Carmel-by-the-Sea, Calif. The interview was edited for brevity and clarity.