Traders voice concerns over growth of passive investing

Nov 28th, 2017 | By | Category: ETF and Index News

A mere 40% of respondents to a recent survey of European traders felt that the recent rise in passively managed assets will bring positive change to their companies. The study, conducted by SIX Swiss Exchange, a leading venue for ETF trading in Europe, found that a majority of those surveyed thought the ongoing growth of passive investing was a major concern for global markets.

Traders voice concerns over growth of passive investing

A staggering 85% believe that a further rise in passive investing could provoke changes in global markets.

According to the SIX Trader Survey – with 185 respondents from across Europe, of which 61% traded in shares, 14% in fixed income, 13% in structured products and 12% in ETFs – the vast majority of traders (88%) have observed a shift from active towards passive investing, with 72% expecting this trend to continue.

The main drivers of passive investing were identified as cost-efficiency (44%), followed by the looming introduction of MiFID II regulation in January 2018 (31%), while the trading environment (17%) was not expected to strongly influence the balance between active and passive investing.

Traders also voiced a very homogenous opinion of the resulting effects of the shift to passive – 85% believed that a further rise in passive investing could provoke fundamental changes to global markets. Additionally, 44% of traders raised concerns about the risk to price formation from current levels of trading in passive strategies.

Tony Shaw, director of the London office, SIX Swiss Exchange, commented: “Our survey results show the rise of passive investment is set to continue, but there are concerns about what this may mean for global markets. At the same time, there are plenty of other challenges for traders on the horizon.”

When asked about the main issues facing traders today, 74% of respondents identified a lack of liquidity in global markets. The fixed income sector stood out with 34% citing liquidity issues, followed by the equities (26%); however, lack of liquidity in the ETF markets was considered a non-issue, with only 3% of traders flagging a concern here.

According to the survey, the biggest challenge facing traders in the next 12 months is regulation, highlighted by 73% of respondents, far higher than the 55% who named regulation as their top concern in SIX’s previous survey, conducted in April 2017. The actions of the European Central Bank were named by 46% of traders as being the most important factor driving trading activity next year followed by “MiFID III” (24%), Trump (16%) and Brexit (11%).

The survey found that traders were more optimistic about employment prospects than in the last SIX Trader Survey. Some 61% said their company would employ about the same or more people in three years’ time compared with 48% last time.

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