Today, indexing might be 20% of total US institutional equity. And now indexing is done on a number of indices like emerging markets, industry groups and other security classes. It is rather surprising that it is not greater. One feature that may have been restraining growth is the agency cover of indexing, which is not as great as with an active manager: more of the responsibility of investment selection may, under some interpretations, reside with the index client than with active managers. Furthermore, if equity markets have an extended decline, indexing may be arrested in its growth.
Indexing lends itself well to being packaged with other services like performance measurement, custody and administration and corporate governance monitoring (see Performance Measurement and Corporate Governance). Thus, the management cost of indexing is often bundled with services customarily offered by large integrated banks.
Indexing is a strategy that has been applied to many different categories of investing. It provides an efficient way for investors to participate in broadly diversified portfolios. Nevertheless, many investors will continue to be attracted to the distinctive investment philosophies and strategies offered by the wide range of actively managed funds (see Active Portfolio Management). A suitable compromise may be to build equity and bond portfolios (or even combine them through a balanced approach) with a core holding in an appropriate index fund. Around that core investment, an investor may select specific actively managed funds that appear likely, in the investor's judgment, to add incremental investment performance over the long run.
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