There’s nothing new about index funds and you could find them in many places around the world. However, the New Zealand idea of listing an index fund, (eg: WiNZ) on the sharemarket and having it traded throughout the day has proved to be a big hit in the US.
(More traditional index managed funds in the US are valued once a day).
Exchange Traded Funds (ETF), as they are called in the US, have been pulling in huge amounts of money since they were rolled out in the US earlier this year.
One of the biggest players in the US market is Barclays Global Investors. It pulled more than US$1 billion into its EFTs on the day they were launched this year.
Barcalys now have more than US$50 billion in ETFs already.
Boston-based Financial Research Corporation estimates that the amount of money in EFTs could swell to US$1 trillion by 2007.
This will come as no surprise to New Zealand investors, but that reason that EFTs are so-liked in the US is that they have low fees, can be traded intra-day and they are tax efficient.
Because the underlying investments are redeemed "in-kind," they avoid any capital gains until holdings are actually sold.
Barclays are so keen on ETF that they are considering launching some products in Australia.
However, a recent report suggested that Australian retail investors aren’t big fans of index funds per se.
Researchers Rainmaker say that most of the money which goes into index funds comes from institutional investors.
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