Sustainable investing as well as massive capital inflows into passive investment strategies are continuing to dominate index trends, according to panelists at a discussion on indices during SRP's 4th Nordic Structured Products and Derivatives Conference in Stockholm on September 13, 2018.
"I guess the biggest trend with indexes is that, there's been a creation of a lot of indices on the market - now we have over three million indices and that is seven times more than we have stocks on the market," said Henrik af Donner (pictured), co-head of Nordic markets at Axa Investment managers.
Ironically, the growth in passive investing, or in other words, putting money in an index-tracking fund, is attracting more investors to factor investing, according to panelists. "The whole passive flow has made all the large companies larger and you see that some investors are quite concerned about these larger companies and therefore, you see trends like factor investing," said Donner.
"We also see the trend in ESG (Environmental, Social and Governance criteria). But that started with factor investment," added Achim Karle, global equity and index sales at Eurex, the largest European futures and options market.
While all panelists also agreed on citing ESG as one of the recent index trends, they pointed out how each investor adopts the sustainability criteria differently in his or her investment portfolio. Environmental, social and governance criteria is a set of standards used by socially conscious investors to screen their investments.
"Pretty much each and every client has one's own view on ESG so we can design a custom ESG for each client," said Fabian Colin, head of sales at Solactive.
Donner said though that finding the right balance between following a trend and ensuring a certain return levels is critical. "People love to put (money) in ESG and on their products. For example, carbon has been a very strong trend in the Nordic markets, but of course, without damaging returns."
"People talk about it, but who's acting about it? If you can afford it, you do it, but if there is too much difference in return, or risk, then people take what they think fits into their portfolio," added Michael Bondegard, head of distribution at Nord Fondkommission.
The panelists also cited artificial intelligence (AI) as well as sectors booming due to the demographics change as recent mega trends in the indices market. "We've created a lot of thematic indices and there, a lot goes towards technologies like everything around robotics, AI, blockchain and topics around that," said Colin. "The second thematic topic is everything about aging society; everything related to health."
Some other trends mentioned during the discussion include China tourism as well as the race among the fund companies on lowering their management fees. Fidelity Investments recently introduced two index mutual funds with zero management fee and after just one month since its announcement, it attracted roughly US$1 billion.
"More and more people are thinking about the cost as they have something more passive," said Bondegard.
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