Index Providers Ride The ETF Asset Wave

July 29, 2014

Index providers are benefitting from the strong flows into exchange traded funds in the first half of the year, with data suggesting that investors are choosing specific benchmarks.

According to MSCI data, net new assets into its indexes via ETFs reached $29 billion in the first half of the year with ETF investors directing a larger proportion of new funds into MSCI index-based ETFs compared to any other index provider.

“In the first six months of this year we saw that for every dollar invested in equity ETFs in Europe, half of it went to ETFs based on MSCI indexes. That is not random, that is investors choosing our benchmarks," said Nicco Ferrarini, executive director at MSCI.

This is contradictory to a move made by some exchange traded product providers over the last year where they have removed the index name from their ETP labels arguing that it makes it more simplified for investors.

Since the start of the year a third of all ETFs launched were based on MSCI indexes, raising $1.45 billion. Assets came into equities broadly, meaning there was no single product responsible for the flows. Investors were buying equity exposure across the board, according to Ferrarini.

Assets are likely being driven by new investors coming into the market, but whether this will continue is unclear.

"Investors are now more aware of ETF instruments and we are seeing wealth and retail investors entering the market,” said Ferrarini.  "It is obviously difficult to predict the future, but the active to passive trend is likely to continue."

"We are seeing the regulatory changes filter down and there is a democratising function of ETFs that will help the whole market grow and more investors come in. ETFs allow all types of investors to access benchmarks, which were previously only available to larger institutions," he said.

Inflows into global ETFs hit $123.9 in the first half of the year, up 25 percent on the same time last year, led by fixed income, European, Japanese and broad-based equity, according to BlackRock’s Landscape report.

Ursula Marchioni, head of ETP research EMEA at iShares, said the second quarter of this year was the best we have seen in five years for flows.

Other index providers also benefitting from ETF inflows include STOXX, the fifth largest index provider which has seen $120.7 billion of assets across 281 ETFs as of June, an increase of 29 percent. Earlier this month FTSE announced that assets linked to its indexes had risen 31 percent in the last year (June to June). While S&P’s ETF assets have also grown 31 percent between June 2013 and 2014, reaching $718.9 billion. MSCI’s assets in the last year have risen by 40 percent to $378.7 billion as of June 2014.



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