Impact on Indices: The Trends in Industry that Affect Indices

Indexing has changed the way of investment management. It is an investment approach which matches your investment to the returns of a basket of stocks, bonds or a market index. While indexing, the fund manager will try to replicate a target index in the form of a portfolio of small securities. It is derived from the theory that markets operate efficiently but it is still impossible to completely replicate a larger index. Index Development has grown in the last few years with many indices introduced to track the market. These indices are developed and framed after a careful evaluation of the market by an index company. These indices are now thus being used as a benchmark of many investment strategies like Indexing mentioned above. But, what the factors which influence these indices-

• Growth of Smart Beta Indices – There is a lot of debate on how Smart Beta index is defined. However, a common notion is that the funds linked to these indices will continue to grow. They give an inexpensive strategies and asset classes which were earlier inaccessible to private investors. Smart Beta Indices follow strategies which aim to generate alpha, a quantity which measures a performance of a portfolio, and can be wrapped in funds, ETFs, and other structured products.
• ETF Issuers changing how they operate – ETF issuers are now relying more on their own brand and ability to collect different asset classes and relying less on the brand of index provider. This has now opened more opportunities for index companies to compete with innovation, greater technology, and breadth of data.
• Regulation Development – Regulation is a major part of the financial world and will continue to evolve and broaden. Index and other Benchmark providers have an expertise in these regulations and governance which ensures objective and independent administration of index related products. Thus, this expertise can be leveraged across other products affected by legislation.

There are various other factors which affect indices and thus shapes are indexing investment strategies. Therefore, one should have a careful evaluation of these factors and one’s investment objectives to gain maximum benefits. Happy Investing!

Source : http://thematicinvestings7.webnode.com/impact-on-indices-the-trends-in-industry-that-affect-indices/