The market is not an isolated thing sitting out there in nature. It is a complex system built and run by humans. Index investors are freeloading off of the work that a bunch of active investors are doing. This is good for the index investors because they do not need to pay for all the work that active investors are doing for them.
Active investors, for their part, need to either maintain enough of an edge over freeloaders to justify their pay, or serve a niche market with concerns other than "line go up" (this is where the "hedge" in "hedge fund" comes from).
If every participant is an index investor, then no one is doing the actual work, so the entire system crumbles.
Active investors, for their part, need to either maintain enough of an edge over freeloaders to justify their pay, or serve a niche market with concerns other than "line go up" (this is where the "hedge" in "hedge fund" comes from).
If every participant is an index investor, then no one is doing the actual work, so the entire system crumbles.