More than 10% of the market
capitalisation of the S&P 500 index is now held by passive funds and index
strategies, according to S&P Dow Jones Indices (S&P DJI).
The index provider said the
amount of money directly indexed to the S&P 500 rose by “nearly 20%” during
2013 to $1.9 trillion. This included $282 billion in exchange-traded funds.
S&P 500’s collective
market capitalisation is roughly $18.4 trillion, following an 8.7% rally this
year, meaning passive strategies account for roughly 10% of the index’s total
assets. However, the true amount of passive assets tracking the index is even
higher as a further $67 billion is invested in products and strategies tracking
S&P’s Composite 1500 and Total Market indices, which include exposure to
the S&P 500.
Approximately $7 trillion of
assets used the S&P 500 as a benchmark at the end of 2013, up 22% in 12
months, the company estimated.
Morningstar columnist and
researcher John Rekenthaler earlier this month claimed passive investing was “now the
mainstream approach” as investors have increasingly lost faith in active management.
S&P DJI said $2.6
trillion was directly indexed to its range of benchmarks—of which there are
more than 1 million.
In addition, S&P DJI
pointed out that roughly $52 billion was now directly indexed to its
factor-based indices through smart beta products and strategies. These indices
500 Low Volatility, S&P Global Intrinsic Value, and S&P 500 Dividend
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