There are 3.288 million indices across the world, according to a survey conducted by the Index Industry Association (IIA). This is a huge increase since 2012 when there were thought to be around 1000 (according to Bernstein).
Equity indices represent over 95% of indices calculated.
The survey, which was conducted as of 30 June 2017, sought information about the total number of indices administered by each IIA member.
There are 14 IIA members, including major players such as S&P Dow Jones Indices, FTSE Russell, MSCI, Bloomberg, IHS Markit and Stoxx.
It is estimated that IIA indices represent approximately 98% of all indices globally available.
Rick Redding, the CEO of IIA, commented: “This is the first time anyone has attempted to quantify the complete index universe and the results are enlightening.”
Global indices represent approximately 29%, the highest proportion of the equity indices available by geography. This is followed by APAC and EMEA, which each represent approximately 24% of equity indices available, and frontier/emerging indices (14%). The Americas have the fewest number of equity indices, representing 9% of indices globally.
However, when looking at fixed income indices by geography, the Americas represent approximately 33% of the total available. This is followed by EMEA (29%), global (25%), APAC (14%) and frontier/emerging (0.5%).
The other most common indices by asset class are based on commodities, foreign exchange and healthcare costs and collectively are less than 1% of all indices.
According to Redding: “The geographical breakdown of equity indexes may initially come as a surprise, but when you think about the number of industries and sectors in each country across the globe, it makes sense that Europe and Asia have a larger share of the index landscape.”
Redding continued: “On the flip side, fixed income results favour the Americas because issues like market structure, taxable status, and size of the securitization market have created much more demand for indexes in sovereign, composite, high yield, and securitisation. What I found interesting was despite recent attention on ESG and smart beta indexes, they only represent less than 6% of the overall market combined. There is much more interest in traditional market cap indexes and our results show that industry and sector-specific indexes are the most common.”
The IIA noted that there were approximately 5,300 index-linked exchange-traded funds across the world, showing that benchmarking is clearly the predominant use for indices around the world. Though this also suggests a degree of market saturation, and that many indices are unused and potentially redundant.
It is worth noting that many of the indices calculated will be specialist and custom editions, offering only slight variations on parent indices (for example, excluding particular sectors, industries and even individual securities), thus accounting for the magnitude of the number of indices available.
Nevertheless, what does this explosion of indices mean for active and passive managers?
A recent report by Bernstein argues that both will face challenges. Active managers must now offer something not available from the millions of indices. But can passive managers harness the asset allocation decisions in future? Active management may become the selection of a portfolio of indices.
The Bernstein report concludes by stating that client outcomes are what matter. A low-return world would shine the light on asset allocation, especially if returns in capital markets fall below growth liabilities in the real world. Bernstein argues that it would be more fruitful to pay for allocation and implementation in proportion to how they aid client outcomes. This comment implies new fee structures, different targets for asset managers, and new thinking on the part of asset owners.