"passive funds that buy the entire market can minimize the damage of front-running. By owning almost every stock, there’s barely anything for arbitragers to buy first."
That is one reason I own the entire index, but not the only reason. S&P index is fine, I don't think the problem is as big as these guys suggest, but it does make me feel better about being in the full index.
Also from the article "Managers at Vanguard Group, which oversees $3 trillion, “mitigate a good portion” of the risk by gradually building positions over time in stocks that are scheduled to be added, said Doug Yones, the Valley Forge, Pennsylvania-based firm’s head of domestic equity indexing and ETF product management."
I highly suspect that most of the "losses" are by firms who don't give a damn about their investors.