The Evolution of Index Investing: Past, Present, and Future

Abstract

Assets under management in US-domiciled index funds have grown from about $55 billion at the end of 1995 to over $12.5 trillion in 2021. Core beta indexes based on region, size, and sectors still dominate the index landscape in 2021. Strategic (or smart) beta indexes, including those labeled value and growth, have grown in scope but still only account for less than 15% of index AUM currently. Strategic beta exchange-traded funds have become the testing grounds for new ideas and index investment products. Looking forward, we conjecture expansion in multi-factor and fixed income index products. Simultaneously, much index innovation will be hidden from public inspection with the rise of custom and direct indexing. More indexing will move from index as an investment product to index as an investment service.