Historical index creation may have created broad tracking of assets but a more nuanced approach is being taken by index providers, which will allow pure factor exposure, better liquidity management and more customised and complex index provision.
The advantages for asset managers are twofold. Firstly, any performance benchmarking can better reflect the reality of market dynamics, such as the liquidity of the underlying instruments in addition to the pricing of assets, exceptionally important in the fixed income space.
Secondly, exchange-traded funds (ETFs) can more accurately track underlying instruments and thereby allow investors to avoid any dislocation between fund and assets. Kat Sweeney of MarketAxess and Mark Makepeace of Wilshire Advisors and founder of FTSE Group give us their vision of the future for indexing.