In the past year, indices measuring markets have ballooned to more than 3.7 m, as providers produce a large number of bond market, environment, social and governance benchmarks. The rising popularity of passive investing has influenced the designing of means to measure everything from performance of small companies, to the music streaming industry.
According to Rick Redding, the chief executive of the Index Industry Association, there is a big amount of innovation that comes out of the fixed income sector, where investors are looking for more fine-tuned benchmarks. Even though the development of the passive bond fund ecosystem has been much slower than the one of index and exchange traded funds, fixed income is now a key focus for many passive investment fund providers.
In addition to that, the bond benchmarking business continues to grow, accounting for about 16 per cent of the overall index universe at the moment. The fastest-growing corner of the indexing industry, however, are benchmarks that track and weight companies according to their environmental, social and governance (ESG) standards.
While the importance of ESG factors in the financial industry, particularly in terms of governance and transparency, has previously been emphasized by BETTER FINANCE, it has recently become one of the biggest trends in the global asset management industry, with an increasing number of institutional investors such as pension funds joining the fray. According to the Institute of Internal Auditors, the number of ESG indices swelled by 60 per cent in the first half of 2018, together with “smart beta” and factor indices. Redding says that even though it represents a small portion of the total index landscape, it leads to investors demanding more choice.
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