Ryan Green, Senior Index Product Intelligence Analyst at Nasdaq

There are several ways for an index provider to grow assets tracking its indexes. The first is to create new indexes for newly launched products to track. The second is to help grow assets in existing products that already track their indexes. The third is to convert products with existing assets under management from competitor indexes to their own indexes.

In the large universe of ETFs, index and benchmark switches are a relatively rare event. There have been around 280 funds switching their target index in the history of ETFs in the US. Generally speaking, products that switch their index tend to be smaller, newer funds that are underperforming their peer group in terms of both organic growth and market performance. These funds often share characteristics with delisted products, and face the danger of being liquidated. Even after switching their target index, nearly 33% of the funds end up being liquidated. Exceptions to this trend include high AUM, low fee, simple quantitative, fixed income, and broad market funds.

Read Full Article →