Index brokers
Index trading, also known as index investing or passive investing, is a strategy that aims to track the performance of a particular index, such as the FTSE 100 or the S&P 500. This strategy has gained popularity in recent years, with more and more investors turning to index funds and exchange-traded funds (ETFs) as a low-cost way to invest in the stock market. But what is the history of index trading in the UK, and how did it become such a popular strategy?
The origins of index trading can be traced back to the 1970s, when the first index fund was launched by the American asset management firm, Vanguard. The fund was designed to track the performance of the S&P 500, a stock market index that measures the performance of 500 large companies listed on the New York Stock Exchange or NASDAQ. The fund was designed to provide investors with a low-cost way to invest in the stock market, by simply buying and holding all of the stocks in the index.
The idea of index investing caught on quickly, and soon other asset management firms were launching their own index funds. In the UK, the first index fund was launched in 1986 by Legal & General. The fund was called the Legal & General Index Trust, and it tracked the performance of the FTSE 100, which measures the performance of the 100 largest companies listed on the London Stock Exchange. The fund was an instant success, and it paved the way for other index funds to follow.
One of the key advantages of index investing is that it is a low-cost way to invest in the stock market. Because index funds simply track the performance of an index, they do not require active management by a portfolio manager. This means that the fees charged by index funds are typically much lower than those charged by actively managed funds. For example, the Legal & General Index Trust has an annual management charge of just 0.10%, compared to the average management charge of around 1.50% for actively managed funds.
Another advantage of index investing is that it provides broad exposure to the stock market. Because index funds track the performance of an entire index, they provide exposure to a diverse range of stocks from a variety of different sectors. This can help to reduce the risk of a portfolio, as it is less exposed to the fortunes of individual companies or sectors.
Over the years, the popularity of index investing has continued to grow. In 1999, the first exchange-traded fund (ETF) was launched in the US. ETFs are similar to index funds, but they trade on an exchange like a stock, and can be bought and sold throughout the trading day. ETFs have become increasingly popular in the UK in recent years, and there are now a wide variety of ETFs available that track different indices or sectors.
Today, index investing is one of the most popular investment strategies in the UK. According to the Investment Association, which represents the UK investment management industry, index funds accounted for around 15% of all funds under management in the UK in 2020. This represents a significant increase from just a few years ago, when index funds accounted for less than 10% of all funds under management.
There are now a wide variety of index funds and ETFs available to UK investors, including those that track the FTSE 100, the FTSE 250, and the FTSE All-Share. There are also index funds and ETFs that track international indices, such as the S&P 500 or the MSCI World Index.
The history of index trading in the UK dates back to the mid-1980s, when Legal & General launched the first index fund. Since then, index investing has become increasingly popular, as more and more investors have turned to low-cost, passive investing as a way to gain exposure to the stock market. Today, there are a wide variety of index funds and ETFs available, allowing investors to track a range of indices and sectors.
One reason for the popularity of index investing is the growing awareness of the benefits of low-cost, passive investment strategies. Studies have shown that actively managed funds, on average, do not outperform the market over the long term, and that their high fees can significantly reduce returns. In contrast, index funds and ETFs offer low fees and broad exposure to the market, making them an attractive option for many investors.
The growth of index investing has also been driven by the rise of digital investment platforms, which make it easy for individual investors to invest in low-cost index funds and ETFs. These platforms typically offer a range of investment options, including both active and passive funds, and allow investors to track their investments and adjust their portfolios online.