Had Jack Bogle lived just a few days longer he would no doubt have been intrigued by this week’s news from Saudi Arabia. Bogle was regarded as one of the greatest financial innovators to have ever lived. He was the brains behind the concept of index investing, by which an investor can put money directly into a stock market via an index of the market itself, rather than via the individual stocks of which the market is composed. Like all the best ideas, its simplicity was striking. Why pay for all that expensive advice, analysis, broking and management fees, and the rest of the paraphernalia of the global investment business? Why not instead buy a financial instrument that represents all the constituents of a stock market, weighted according to size and liquidity. Better still, why not let a computer do it for you? The absence of human effort put into the buy/sell decision led to the term “passive investment.” Bogle’s idea — though he was only at the beginning of the modern computer age when he had it — has revolutionized the investment business. Now passive investment in indices is by far the biggest part of the global investment universe. Unless you consciously chose to pay for the services of an old-fashioned investment adviser, your funds will almost certainly be handled digitally and will be linked to the value of an index. These days, especially in the decade since the global financial crisis, you will not hold shares in Apple, or General Electric, or Bank of America directly, but you will hold shares in the indices of the markets on which these stocks are traded. And a good thing too, because all the smart investment brains in the world do not do better, over an extended period, than the indices. Warren Buffet, renowned investment Sage of Omaha, recommends passive index investment over active, and has also suggested the US erects a statue to Bogle, who died last month aged 82. Last week, Saudi Arabia caught up with the Bogle revolution when the MSCI Tadawul Index went live for the first time. The new index was the logical and most fruitful outcome of the decision last year to grant Saudi Arabia emerging market status by the index compiler MSCI. Before, any investor wanting to back the Kingdom’s economic transformation would have to either buy a regional index, in which Saudi Arabia was mixed with other economies in the Middle East and North Africa, or go through the process of becoming a qualified investor and acquiring a regulated status in the Kingdom, to buy individual stocks such as SABIC or NCB, two of the biggest corporates listed on the Tadawul. The new index was the logical and most fruitful outcome of the decision last year to grant Saudi Arabia emerging market status by the index compiler MSCI. Frank Kane Many big global investors did not want to go through that process, and in many cases they were forbidden by their constitutions from putting money into a market that had not received the seal of approval of an MSCI, or the other compilers such as FTSE Russel (which Tadawul will join later this year). Now, there is nothing to stop them getting a slice of the Saudi action via the new index. It will consist of about 30 of the biggest stocks in the Kingdom, though the composition can vary to allow as many as 35 to be included. In a while, the “MT30” — as the index will be known — could be as commonplace a phrase in the financial world as the S&P 500 or the FTSE 100, the leading indices in New York and London. The index compilers have put a cap at 15 percent for any individual stock’s proportion of the index, which is designed to prevent an index or indeed an exchange, being too reliant on the performance of just one equity. For the time being, that is fine, but they may have to think again when Saudi Aramco finally makes its long-awaited stock market debut. It will be so big that it will certainly break the 15 percent ceiling. But the compilers and policymakers have some time to think about that. In the meantime, the new index gives foreign investors the opportunity to add Saudi Arabia to their investment portfolios in an affordable, efficient and traceable way, while the Kingdom gets access to the multitrillion-dollar passive investment market. Bogle — whose invention proved to be a “win-win” for markets and investors — would certainly have approved. Frank Kane is an award-winning business journalist based in Dubai. Twitter: @frankkanedubai