What % of the stock market volume are (primary) tx from index funds

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BeBH65
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What % of the stock market volume are (primary) tx from index funds

Post by BeBH65 » Tue Mar 13, 2018 12:42 pm

The people that don't like index funds use different arguments to point at the percieved danger of index funds.


A. One argument points at the high amount of AUM in traditional or exchange traded index funds.
B. Another argument states that the large influx of money in index funds is/has driven up the prices of the stocks in these funds as the index funds are obliged to buy the stocks and hence bid up the price.

Have I understood the arguments correctly?


One response for the first argument replies that today "only" about 1/3 of the assets are managed by index funds, and that we should not be too concerned on this. There have been multiple threads already on this.


Related to the second argument I would think that the number of transactions generated by the stock market index funds might be considerable but would still be lower then the number of transactions generated by non-index funds and individual investors and others?

Are there any statistics that show the split of the stock market transactions in a way to be able to identify the transactions triggered by index funds (either Tradition (Mutual) Index Funds or Exchange Traded Index Funds)?

I searched on this forum, teh Vanguard site end the general internet but could not find anything suitable? I was looking at the statistics of the Investment Company Institute but was not able to locate the correct info.
I did learn that for ETFS about 9/10 of the transactions are just transferring the basket of assets and 1/10th lead to basket creations and redemptions. Hence only those lasttrigger "primary" transactions on the underlying assets. I assume that only those influence the price of the uderlying assets directly.
How does this work for traditional (mutual) index funds? When do these funds buy the underlying assets in case the demand -at the end of the day- is higher then what becomes available by the sales investors?
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence).

lack_ey
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Re: What % of the stock market volume are (primary) tx from index funds

Post by lack_ey » Tue Mar 13, 2018 1:58 pm

Hougan: Is indexing too big?

[Vanguard CEO Tim] Buckley: The short answer is no, not by a long shot. There are misleading but headline-grabbing statistics quoted in the media all the time, but the reality is that indexing represents about 15% of the value of all global equities and less than 5% of global fixed-income assets. Much of the anti-indexing rhetoric comes from varied sources who’ve felt their revenue decline with indexing’s rise.

I strongly disagree with the assertions on indexing size and undue influence on the financial markets and in boardrooms. Our research shows that index funds make up less than 5% of daily trading volume. [emphasis added] As such, there’s considerable price discovery and liquidity provided by active strategies.

There are also unfounded assertions that index fund managers stifle competition and conspire to keep prices high. Vanguard and other index providers are active and engaged on the corporate governance front, and promote good stewardship practices and healthy competition among portfolio companies.
http://www.etf.com/sections/features-an ... nopaging=1

Perhaps a biased source, but Vanguard runs a lot of active funds as well. Also the indexing figures are higher for US securities than outside the US.

BeBH65 wrote:
Tue Mar 13, 2018 12:42 pm
How does this work for traditional (mutual) index funds? When do these funds buy the underlying assets in case the demand -at the end of the day- is higher then what becomes available by the sales investors?
Funds keep cash on hand to deal with fund flows and managing the portfolio. Index funds may use derivatives to make up for that cash exposure to be effectively 100% invested. If there are net flows from more money coming in than going out or vice versa from investor buy/sale orders on the fund for a day, then they will have more or less assets than before and need to take action accordingly. When exactly they place trades is up to the manager.

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BeBH65
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Re: What % of the stock market volume are (primary) tx from index funds

Post by BeBH65 » Wed Mar 14, 2018 9:55 am

Thanks for this.

That the transactions triggered by indexfonds really only make up 5% of the total volume is lower then I expected.
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence).

CurlyDave
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Re: What % of the stock market volume are (primary) tx from index funds

Post by CurlyDave » Wed Mar 14, 2018 10:21 pm

BeBH65 wrote:
Wed Mar 14, 2018 9:55 am
...That the transactions triggered by indexfonds really only make up 5% of the total volume is lower then I expected.
Has anyone ever tried to make a living day trading ETFs?

IMHO volatility is lower than individual stocks, and index fund investors are buy and hold types.

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ogd
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Re: What % of the stock market volume are (primary) tx from index funds

Post by ogd » Thu Mar 15, 2018 7:58 pm

BeBH65 wrote:
Wed Mar 14, 2018 9:55 am
Thanks for this.

That the transactions triggered by indexfonds really only make up 5% of the total volume is lower then I expected.
Understandable when you look at the turnover numbers. For index funds, it's 5% and below. For active funds, it can exceed 100% a year! If it's too low, they're accused of being "closet indexers" in that world. So glad I'm no longer living in it.

Swimming with the market has big advantages. Lower fees, lower (often zero) capital gains distributions, but importantly for your concern it [cap-weighted indexing] is the one strategy that can sustain large % of assets being managed that way, because even then the percentage of volume will be small. Even other passive strategies that deviate significantly from cap-weighted and have to "respond" to price moves have in theory much less room to grow -- let alone any one active fund.

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