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How the Rise of Indices Is Changing the Face of Investing
Passively managed funds, including exchange-traded funds (ETFs) and index funds, have grown 73 percent over a six-year period, increasing from 11 percent of global assets under management (AUM) in 2009 to 19 percent in 2015. Within this segment, ETFs have been growing at an annual growth rate of approximately 25 percent over the past decade, with AUM above $3 trillion. Institutions, too, are increasingly using ETFs for core exposures and access to smart beta strategies. In a study by Greenwich Associates, 36 percent of the institutional equity ETF users expected to increase their allocations to ETFs in the year ahead, while that number was 35 percent for institutional bond ETF users.
Accompanying this growth has been a sharp fall in fees. Investing in the U.S. stock market through an index-based fund in 1976 would have cost an upfront fee of 6 percent, as compared with just 0.05 percent for many index-based funds today. The downward trend in fees can be seen across active