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Indexing set to reach $1 trillion by 2026

Rainmaker Information 3 mins read

Indexed investing is on-track to surpass $1 trillion by 2026, when it should account for more than one-quarter of all investment management FUM.

Indexing in Australia in 2023 reached almost $760 billion, equivalent to 23% of investment management funds under management (FUM), according to research from Rainmaker Information’s Institutional Roundup Report.

Indexed investments represented 18% of investing management FUM a decade ago.

“Indexing routinely grows one-third faster than the broad investment market,” said Alex Dunnin, executive director of research and compliance at Rainmaker Information.

“Within some asset classes, this will make indexing the default investment style, adding pressure on the business models of active managers.”

The entire exchange traded fund (ETF) market is equivalent to just 4% of the whole investment market, though it is 18% of the indexed FUM market.

“It’s clear that the growth of ETFs goes nowhere near explaining the indexing phenomenon,” said Dunnin.

“Instead, the power of ETFs is that they dramatically simplify how retail and wholesale investors can access the low-cost, high-value investment sector.”

Reiterating this, in the 12 months to 30 September, exchange traded products had net flows of $10.8 billion, while managed funds, had negative net flows of $26.8 billion.

Equities make up 70% of indexed FUM, fixed interest makes up 13%, with the balance held across property, cash and alternatives.

79% of indexed FUM is held in growth assets, according to Rainmaker Information.

Indexed asset classes 1997 to 2023

While 23% of the overall FUM market is indexed, 37% of equities FUM is indexed, which has grown from 30% in the last five years.

The indexing penetration ratio of Australian equities is 29% and a staggering 45% for international equities.

The ratios for fixed interest are a more tempered with 17%, and 10% for all other asset classes.

Despite the market growth, the indexed investment management market is extremely concentrated.

“State Street Global Advisors, Vanguard and BlackRock hold 68% of the indexed FUM market, however this ratio varies greatly by asset class.”

“The ‘Big-3’ hold 73% in international equities but 58% in Australian equities, while in asset classes with low indexing ratios the ‘Big-3’ concentration is even greater, surpassing 80%,” said Dunnin.

 

Originally published at: https://www.rainmaker.com.au/media-release/indexing-set-to-reach-1-trillion-by-2026

 


About us:

About Rainmaker Information

Rainmaker Information, founded in 1992, is a leading Australian-based financial services information publishing house providing marketing intelligence, research, and consulting services on the wealth management industry. 

 

Rainmaker gathers and generates in-depth marketing intelligence with industry research, data, professional development and media capabilities. These resources can be accessed with a subscription to the RainmakerLive terminal. 

 

Rainmaker Information is owned by Institutional Shareholder Services (ISS) and is part of its ISS Market Intelligence business. 

 

  

About ISS Market Intelligence  
ISS Market Intelligence (MI) is a leading global provider of data, analytics, insights, media, and events solutions to the global financial services industry. 

 

ISS MI empowers global asset and wealth management firms, insurance companies, distributors, service providers, and technology firms by providing cutting-edge market-engagement platforms and the actionable intelligence necessary to fully assess their target markets, identify and analyze the best opportunities within those markets, and execute on comprehensive go-to-market initiatives to grow their business.  

 

ISS MI clients benefit from our increasingly connected global ecosystem that leverages a combination of proprietary data, powerful software and analytics, timely and relevant insights, in-depth research, as well as an extensive suite of industry leading media brands that deliver unmatched market connectivity through news and editorial content, events, training, ratings, and awards.  


Contact details:

Julian Clarkstone 
P. 02 8234 7514 
E. julian.clarkstone@rainmaker.com.au

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