This is why we should expect to see more indexes that take a sampling of the constituents in a given benchmark, such as with the new Nasdaq 100 Data Explorers Optimized Index (Nasdaq:NDXOPT). The sampled version of the Nasdaq-100 eliminates hard-to-borrow names, thereby making it an easier index for firms like Source and ETF Securities to create. That, in turn, will result in cheaper costs for all, while retaining the performance of the original index.
As ETFs and ETCs have gathered more assets, questions are beginning to increase right along with investor interest. Many people are questioning the products’ composition, efficiency and ability to track their underlying indexes. They are asking whether the counterparty selection is probing in the right areas, and whether greater transparency will make the ETF industry stronger in the long term (assuming the providers continue to respond with more transparency).
Regulators need to consider that indexes are, and always will be, quirky. For instance, did you know that Switzerland’s main index basically reflects the movements of a single massive company, Nestle, which makes up around 20 percent of the index, as revealed in the comments posted to a lively IndexUniverse debate. The FTSE 100 is not a barometer of the U.K.’s economic health—it tells you how well financial and resources companies are doing.
Talking resources, the London market will be biased even further toward commodities with the upcoming IPO of Glencore (market cap expected in the $50 billion to 70 billion range). If you don’t have the stomach to invest directly in ETCs, perhaps an investment in the experts might do the trick?