Dubai: S&P Dow Jones Indices is taking a plunge into passive or low-cost index funds in the Gulf region.
The index provider has launched 15-factor and multi-factor indices, based on the constituents of the S&P GCC Index, S&P Saudi Arabia Index, and the S&P Saudi Arabia Shariah Index, utilising factors such as volatility, value, quality and momentum, report agencies.The indices are being launched late in the region, compared to similar regional products in developed markets, because local markets lacked depth in terms of liquidity and momentum of listed shares.
“We want to support passive investing in region and offer the opportunity to local clients who currently have only the option of active investing to reap the benefits of passive investing,” Charbel Azzi, Head of Middle East, Africa & CIS at S&P Dow Jones Indices told Gulf News.
“As data shows, over a long-term investment horizon, active managers across market cap segments and styles have underperformed their respective benchmarks. Through a number of studies, we have found that managers that outperform their benchmarks in a given year, or are in the top quartile of their peer groups, are unlikely to repeat their winning streak repeatedly,” he added. Globally, passive investing has been a success story so far. In the United States alone, 47 per cent of the assets in 2018 were in passive funds, compared to 20 per cent in 2007. The share of passive in US-domiciled equity funds will exceed 50 per cent within 2-3 years, according to JP Morgan.
In terms of performance, about 80 per cent of the active managers didn’t beat the benchmark for a single year globally, a study of 5,000 fund managers done by the S&P Dow Jones Indices revealed.
“For the past nine to ten years we have seen a lot of interest in the factor and multi-factor investing. Factor investing is a strategy that chooses securities on attributes that are associated with higher returns. Our indices cover factor combinations, as backed by academic research and empirical results, including low volatility, value, high dividend, quality and more,” Azzi said.