The reason for this is the following：
The total risk of any portfolio includes system risk and non-system risk. Systematic risk comes from the uncertainty of macro factors, and non-systematic risk comes from the uncertainty of special factors of securities in portfolio.
Because systemic risk comes from macro factors that affect the driving force of the whole securities market, all securities will be affected by it and cannot be reduced by diversification of securities portfolio; Non-systematic risk comes from micro-factors of enterprises. Because the micro-factors of different enterprises are not related to each other, this part of the risk can be reduced or even eliminated as much as possible through decentralization.
As a portfolio with completely dispersed non-systematic risks, index funds can be considered as market risks. Because index fund is a kind of portfolio investment that tracks its target index, index fund generally has all risks related to the types of assets held by the fund, and it can only reduce the risks of companies and industries that will occur when investing in a few stocks. When the stock market falls, the net value of stock index funds will also fall; When the market interest rate rises, the price of bond index funds will fall.
For example, due to the bursting of the bubble of American high-tech companies, the return rate of American index funds based on Nasdaq 100 index was about -36.5% from August 3 1 2002 to August 3 1 2002. Therefore, when the stock market fluctuates downward, the net value of index funds may fall more than that of actively managed funds. In short, index funds have not reduced the market risk, that is, the possibility of a market composed of all bonds and stocks falling. When the market changes greatly, actively managed funds can buy and sell special stocks or hold cash to avoid risks. It should be noted that for a long time, there will definitely be some actively managed funds with better performance than index funds. Therefore, even after nearly 30 years of development, the net assets of American index funds only accounted for 10% of the net assets of American mutual funds on February 3. Similarly, after nearly 60 years of development, on February 3, 2006, the shares of American companies held by American mutual funds only accounted for 2 1% of the total market value of American companies. As long as you do the calculation, you can know that the shares of American companies held by American index funds only account for 2% of the total market value of American companies.