The number of market indexes now exceeds the number of U.S. stocks.
Traditional ones such as the S&P 500 are collections of securities
weighted by market value, and index funds mimic them as a low-cost way
to deliver the market’s performance. Many new indexes are different:
They include stocks based on custom criteria, such as having low
volatility or high dividends.*
What drove the jump?
Demand.
Many new benchmarks essentially repackage active investment strategies
into indexes, says Eric Balchunas, senior exchange-traded fund analyst
at Bloomberg Intelligence. They can then be tracked by so-called
smart-beta ETFs, which fund companies are rolling out rapidly.
Why so many new ETFs?
Money
managers are under pressure to cut costs, says Balchunas, as investors
shift their money into funds with low fees. Smart-beta ETFs are
generally more expensive than S&P 500 funds but cheaper than
actively managed funds. It remains to be seen how well the new funds
will perform.
