Passive funds that track stock indexes own significant portions of property owners and managers. This Dec. 10, 2017, photo shows an apartment building at 338-340 East 11th Street in New York. (Bloomberg file photo)
Passive funds that track stock indexes own significant portions of property owners and managers. This Dec. 10, 2017, photo shows an apartment building at 338-340 East 11th Street in New York. (Bloomberg file photo)

The future of passive investing is facing one of its biggest tests yet. And surprisingly the challenge is coming from a handful of relatively obscure real-estate companies.

Funds that track indexes are coming increasingly close to owning a majority of shares in eight property owners and managers, according to a report from Bloomberg Intelligence. Real estate stands out in a wider market where just 16 percent of stocks are held by passive investors. That makes these companies potential bellwethers for the impact of benchmark tracking as the funds grow.

“For firms with high passive ownership, you have lower reaction to company-specific news,” said Itzhak Ben-David, a finance professor at Ohio State University who’s studied the topic. “When everybody pulls money out of the market or gets into the market, the tide lifts all boats.”

Identifying the potential dangers within passive investing vehicles — particularly exchange-traded funds — has been a Wall Street…