BUY SIDE

Traders concerned as they anticipate further growth in passive investing

Passive investing set to grow, but just 40% of traders see the rise as a positive development for their companies.

By Hayley McDowell hayley.mcdowell@strategic-i.com November 28, 2017 11:17 AM GMT

A survey has found the majority of traders have seen a shift from active to passive investing and 72% expect this to rise further next year.

A poll of European traders by SIX found a significant 85% believe the growth in passive investing could provoke changes across global markets, while just 40% see the development as positive for their companies.

Tony Shaw, director of the London office at SIX Swiss Exchange, commented: “Our survey results show the rise of passive investment is set to continue, but there are concerns about what this may mean for global markets.”

The traders polled by SIX said the trend is being driven by factors like cost efficiency and MiFID II, and 17% believe the trading environment will not influence a balance between active and passive investing.

A further 44% of traders in Europe raised concerns about the trend adding there is a risk to price formation from the current levels of passive activity and strategies.

SIX’s survey also found more traders cited regulation as the biggest challenge in the next 12 months than in its previous trader survey which took place in April this year.

Shaw added: “At the same time, there are plenty of other challenges for traders on the horizon – the biggest being regulation coming into effect in 2018.”

Just under a quarter of traders told SIX MiFID II - due to come into effect on 3 January - will be the most important factor driving trading activity next year.