Infographic: Three myths related to indexing

August 27, 2018

 

Setting the record straight: Truths about indexing research defines what indexing is to dispel misconceptions about indexing's market share and characteristics. Many of the unfounded claims stem from skewed definitions of the indexing marketplace.

Three misconceptions about indexing

Misconception: Indexing dominates the market (it's too big).

Reality: It's a small part of the market.

Misconception: All indexing is passive.

Reality: Investors use passive funds to build active portfolios.

Investors use passive funds to build active portfolios graph

Misconception: Indexers own only the largest publicly traded stocks.

Reality: They own funds across the market-cap spectrum.

Funds across the market-cap spectrum chart

Truths about indexing infographic series

This is the first of a three-part series. Don’t miss part two, Defending indexing, and part three, Advocating for indexing's benefits.


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1 Data are as of September 30, 2017. Global registered fund assets are represented by Morningstar, excluding funds of funds, feeder funds, and money market funds. Global equity fund market share is represented by Morningstar global broad category group equity mutual funds and ETFs. Global equity market-cap is represented by the FTSE Global All Cap Index. Global fixed income market-cap is represented by the Bloomberg Barclays Multiverse Index. Global fixed income fund market share is represented by Morningstar global broad category group fixed income mutual funds and ETFs. Ownership share of outstanding securities is best estimate based on available data. U.S. registered fund assets are represented by Morningstar, excluding funds of funds and money market funds. U.S. equity fund market share is represented by Morningstar category group U.S. equity and sector equity mutual funds and ETFs. Fixed income fund market share is represented by Morningstar category group taxable bond mutual funds and ETFs. U.S. equity market-cap is represented by CRSP US Total Market Index. U.S. fixed income market-cap is represented by Bloomberg Barclays U.S. Universal Index. Ownership share of outstanding securities and trading volume are best estimates based on available data.

Source: Vanguard calculations, based on data from Morningstar, Inc. FactSet; CRSP, Bloomberg, and ArcaVision.com.

2 Average index fund includes U.S.-domiciled index mutual funds and ETFs in the U.S. equity and sector equity categories, and its returns are asset-weighted. Average index fund returns and Vanguard Total Stock Market Index Fund returns are relative to a total market index represented by the Wilshire 5000 Index. Data are from 1993 to 2016.

Source: Vanguard calculations, based on data from Morningstar, Inc.

3 Data represent U.S. ETFs in Morningstar strategic beta category. Data for 2016 are through October.

Source: Vanguard calculations, based on data from Morningstar, Inc.

4 Stock size is measured by market capitalization in logarithmic scale. Data are as of December 31, 2015.

Source: Vanguard calculations, based on data from Morningstar, Inc., and FactSet.

All investing is subject to risk, including possible loss of principal.

© 2018 The Vanguard Group, Inc. All rights reserved.

 

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