Within the asset management industry, the recent rise in pure passive investing, based on traditional cap-weighted indices, is set to slow down in the near-future as more investors seek to diversify their portfolios while earning cheap alpha returns at near-beta fees.
Retail investment is undergoing a shift away from managed equity funds and towards index tracking passive funds and exchange-traded funds. Passive funds charge their clients lower fees than managed funds, mainly due to the simplicity of their operations, the buying power they can exert on their brokers and the lack of the requirement for brokers to provide research offerings. By focusing on following their indices and reducing commissions for re-balancing trades, passive funds are becoming increasingly attractive investments.
The growing ability of non-bank spot FX liquidity providers to service client demand in the marketplace came to the fore in 2016’s Euromoney annual spot FX volumes survey results, which showed that the amount of currencies volume supplied by the top-five market-makers was falling when compared to the ability of one proprietary trading firm – XTX Markets – that provides pricing to dealer-to-client currencies (D2C) venues.