Is index investing an equity only phenomenon
Nine in 10 (94%) use equity index products, while 60% use them for bond exposures. Investors are commonly using index tracking funds in areas of the bond markets where they believe it is more challenging to generate alpha, such as short duration and inflation-linked bonds.
Financial advisers are the most prolific users of bond indexing products, while wealth managers often use fixed income indexing products so they can access multiple exposures with a range of durations rather than having to buy a basket of individual bonds. Looking ahead, investors across the board pointed to a demand for more innovative ways to weight fixed income index products.
Not all about TER
For three quarters of investors (73%) cost is the driving factor for picking a particular index product, but the research showed that more sophisticated investors tend to focus on the ‘Total Cost of Ownership’, which aims to take ongoing charges as well as entry and exit costs into consideration.
Is smart beta considered a fad?
The survey suggests there is interest in smart beta strategies. A third of investors are using smart beta in their client portfolios, with value and dividend strategies the most popular. Those that do not point to a desire to see a longer track record and more attractive pricing before they invest.
Will robo advice replace traditional portfolio construction?
Interviewees generally believe robo advice or digital wealth managers will complement rather than replace traditional methods of portfolio construction.
Although in its infancy, surveyed firms are building two different robo propositions: financial advisers are leading the way in building tech-enabled interactions with clients and automate portfolio construction, while private bankers are more excited about the potential to use robo propositions to package more sophisticated trading strategies for clients that don’t necessarily work in a mutual fund structure.
Will investors’ use of index products increase or decrease?
Investors polled commonly invest up to 10% of a typical portfolio in index strategies. Many saw 30-40% of a multi-asset portfolio held in index products as a natural ceiling. Against this backdrop it is no surprise that 39% of users of index products plan to increase their allocation in the next two years. Half of respondents with over 10% AUM invested in index products plan to increase their allocation over the next two years.
