No, the war isn’t between advocates of index investing and those of active investing. The real war is between the people who construct the indexes. As this article points out, it’s a lucrative business that few investors know about. It’s also ruthlessly competitive and about to become more so. If indexes really are the market, why aren’t they free or crowdsourced?
BlackRock, for instance, started its first self-indexed funds last month, with Laurence Fink, the firm’s chief executive, describing it as “one of the ways we are using our scale and technology to reduce manufacturing costs.” Charles Schwab Corp., meanwhile, is seeking approval for what could be the first no-fee ETF, made possible by using a homemade index, another first for the firm.
“It’s actually a race toward zero and index providers need to react to that as well,” said Steffen Scheuble, the Frankfurt-based chief executive of Solactive, which has about $20 to $25 billion in ETFs following its benchmarks.