BHP vs CBA — How passive investing is shaping the fight for the ASX's biggest company

This week, BHP Group (BHP) surpassed Commonwealth Bank of Australia (CBA) as the ASX’s biggest listed company by market capitalisation. The lead has changed hands several times in recent years, most notably in late 2025 when an unprecedented rally propelled CBA well ahead of BHP and cemented the bank’s dominance at the top of the market.

There are several reasons for the swinging nature of the tussle for top spot, more recently, the increase in global investor appetite for commodity stocks. However, there is another more pervasive factor at play, and it’s likely to continue to shape the fortunes of the ASX's most important blue chip stocks: it's passive investing flows.

Passive investing is a low-effort approach that aims to match market returns rather than beat them. It typically involves index-tracking funds, often delivered as exchange traded products (ETPs) such as exchange traded funds (ETFs), which hold broad baskets of shares. Most default superannuation options rely heavily on this model, favouring diversification, low fees, and long-term growth over active stock picking.

Whether this applies to you, or you hold a portfolio of blue chips directly, it is worth delving deeper into passive investing flows and how their rapid growth is having an outsized impact on the local share market.

The growing influence of passive flows on the ASX

Firetrail Investments estimates passive investors now hold up to 45% of the Australian share market — a level that would have sounded extreme a decade ago [1]. In its latest report on ASX-listed ETPs, the ASX estimates that about $783 million a day flowed through these largely passive vehicles in 2025, equivalent to roughly 12% of total daily turnover. ETP ownership rose 27% last year and has quadrupled since 2020 [2].

Passive investing is no longer marginal — it is a structural feature of the market.

The defining feature of passive investing is that flows dictate trading. When money enters index-tracking funds, managers must buy constituents in proportion to their index weights; when money exits, they must sell. In Australia, that translates into large, mechanical flows into and out of ASX-listed companies, independent of earnings outlooks, strategy, or valuation.

This dynamic is amplified by the ASX’s unusually concentrated structure. In a typical ASX 200 ETF, around 33% of assets sit in Financials and 22% in Materials, with CBA and BHP among the largest weights. Because these benchmarks are market-capitalisation weighted, the biggest companies attract the largest share of passive inflows — and absorb the largest share of outflows.

The practical consequence is that a meaningful slice of day-to-day demand and supply for Australia’s largest stocks is increasingly a function of index weight and fund flows, rather than active judgement about the underlying businesses.

When flows matter more than fundamentals

The concentration among the ASX’s biggest stocks means passive money keeps flowing into the same small group of blue chips, reinforcing their dominance and, at times, inflating valuations purely because of their size and index weight. Let’s investigate a few case studies where passive flows have potentially exacerbated stock price moves of the ASX’s largest stocks.

1. Commonwealth Bank of Australia's 2024-25 bull run

A case in point is CBA's astonishing share price appreciation during most 2024 and the first half of 2025. It’s a classic example because it’s widely held indirectly through super funds and ETFs, meaning it can attract large, benchmark-driven inflows when global investors allocate to Australia’s index heavyweights. In this case, as some international fund managers looked for lower-risk alternatives to US government bonds.

Research analysts at major fund managers, as well as investment banks, generally decried the rally as a function of fund flows rather than fundamentals. Each group of experts pointed out CBA's substantial overvaluation based on both then-current growth forecasts and historical comparisons. One fund manager interviewed by our sister-site Livewire Markets even remarked, "I would rather stick pins in my eyes than buy CBA."

Commonwealth Bank of Australia (CBA) chart 29 Jan 2026

CBA’s share price has since corrected, falling about 27% since its June 2025 peak of around $192, underperforming the ASX 200 index by a staggering 33% over this time. This is perhaps one of the best examples of how fund flows can artificially inflate the price of a stock — in this case the largest stock on the ASX — and when the correction comes, potentially damage passive investors' portfolios.

2. BHP reclaims top spot as commodities bull run intensifies

Could it all be happening again in the ASX resources sector? Materials stocks make up almost a quarter of the ASX 200, dominated by WA-based iron ore producers, gold and lithium miners. Add in the other highly cyclical sector, Energy — home to majors like Woodside Energy (WDS) and Santos (STO) — and it becomes clear that a large slice of the ASX can move at the whim of global commodity prices.

Commodity-led rallies can be deceptively powerful, lifting prices, earnings expectations and index weights in tandem. But when the tide turns and investors withdraw money from passive investments, the process reverses, with underlying shares sold and drawdowns in resource stocks often deepened.

BHP Group (BHP) chart 29 Jan 2026

This can create a self-fulfilling dynamic, where passive flows amplify the boom-bust cycles already embedded in commodity-linked equities. The important nuance is that the mechanism is not “wrong” — it is simply indifferent: index buying and selling does not ask whether a move is justified, it merely matches the benchmark.

3. Hidden flashpoints: index rebalances

Passive investing can also compress volatility into specific windows. During index rebalances, passive investment funds and ETFs may need to trade large volumes quickly, often near the close to match benchmark pricing.

For stocks scheduled to enter or exit an index, that can trigger sudden bursts of trading and price swings that are unrelated to commodity news or company performance at that moment.

For investors, the implication is: some of the sharpest short-term share price moves can be structural, not informational.

Active managers are shrinking, but still set the price

Even as passive ownership grows across the Australian share market, active managers remain crucial in the price discovery process. It can be argued that active fund managers lead and passive funds follow.

The risk to the price discovery process is that with active management under pressure, the number of marginal price setters may shrink, increasing the chance that markets are steered by pervasive money flows rather than astute market judgment.

Here’s the kicker. While active funds are arguably essential to ensuring share prices reflect actual fundamentals rather than the sheer weight of passive money, their influence is being squeezed as their market share shrinks. Performance is widely seen as the major headwind for active fund managers as they struggle to compete with lower-cost passive options. According to S&P Global, 71% of Australian active funds underperformed the market in the first half of 2025 [3].

Passive investment promoters frequently seize upon these types of statistics, and investors appear to be heeding the call, highlighting the challenges facing active capital.

Assessing your exposure to passive flows

For most Australians, passive investing mainly happens through their superannuation — a retirement savings pool now worth around AU$4.66 trillion as of late-2025 [4]. Most members are automatically placed into default or “Balanced” option, which is the most common choice for those who don’t actively select a strategy.

These options typically hold a mix of growth assets, including shares and property, which are usually passively managed. In large funds such as AustralianSuper, more than 90% of members are invested in the Balanced option, illustrating how pervasive this default, broadly passive exposure is [5].

This widespread reliance on passive investing carries clear practical implications:

• Broad market ETFs can be more concentrated than they look, with big banks and miners dominating exposures.

• Liquidity can mask fragility, as rebalances can trigger short term volatility.

• As was the case with CBA, and is potentially repeating with resources stocks like BHP, the ASX is substantially exposed to offshore passive investing decisions that can push local share prices a long way from their intrinsic values.

There are, however, benefits of passive investing — mainly, it has cut costs and democratised market access. But the rise of passive investing has also raised the odds that in the next global shock, the ASX, particularly its heavyweight banks and resources names, move less on fundamentals and more on momentum and flow.

The key takeaway is that passive investing is neither good nor bad. What matters is that investors understand how passive flows are increasingly becoming a major driver of portfolio performance. To help manage this risk, here’s a practical checklist for assessing your exposure to passive flows:

• Consider whether you are passively invested via default super fund options — as passive investments may expose you to inflated valuations plus volatility arising from global passive flows.

• Check your sector exposures, expect banks and big miners to be the first transmission points for global risk.

• Monitor index changes as they may create substantial volatility in your holdings.

References

• [1] Firetrail Investments — Active Management is Alive and Well - If you know where to look, 10 December 2025

• [2] ASX — ASX Investment Products - December 2025, January 2026

• [3] S&P Global — SPIVA® Australia Scorecard, 8 September 2025

• [4] APRA — APRA releases superannuation statistics for September 2025, 26 November 2025

• [5] Australian Super — 10 steps to change super funds, 19 December 2025