The growth in popularity of passive investing has increased the awareness of how important indexes can be in investment management, but benchmarking also plays a central part in active management, according to a recent study by Greenwich Associates.
The report, entitled Benchmarking Value Indexes Among Active Managers, reveals how active managers also incorporate benchmark index data into their strategies.
Passive ETFs use broad market indexes as benchmarks to enable investors, both retail and institutional, to gain exposure to certain markets, sectors and geographies at a low cost. Active investors use indexes to gain a neutral overview of investment options and help make asset allocation decisions.
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Out of the 85 respondents for Greenwich Associates' study, 81% said they find indexing data important to their business.
While the data may be important for the majority of asset managing executives, nearly half believe that index data is not good value for money. One factor for this opinion is because of how some firms have experienced an increase in their index licensing costs over the past two years.
In tandem with firms’ index data costs rising, revenue also climbed for the majority. Exactly three out of five respondents experience both figures rise however, 10% found their revenue decrease despite index costs rising.
An area in which index providers could offer more value is in environmental, social and governance (ESG) data. Greenwich Associates highlights ESG as a factor which will become more important within investment strategies but currently, there lacks clarity around how to measure a company’s ESG factors.
Greenwich Associates concluded by saying how indexing companies are well placed to provide additional context and insight into financial markets that could significantly enhance the value of their underlying index products and extend their relationships with clients.
