Why index investing
Index investing provides efficient, transparent and low-cost exposure to markets. The key benefits of index investing are presented below.
Consistent market exposureIndex products aim to deliver the returns of their chosen market by investing in the securities that make up the relevant index. So an investor who wishes to gain exposure to the FTSE 100 can seek returns (less fees) in line with that index. |
Transparency
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Efficient building blocksIndex products can provide the foundation or starting point for a diversified portfolio, with low-cost exposure to a given segment of the market. In other words, using index funds in your portfolio can free-up funds for other investment. |
DiversificationIndex products are made up of a broad portfolio of individual securities and can help lessen the risk that comes with investing in a single security. |
Cost-effectivenessIndex products offer a cost-effective route to many markets which would otherwise be expensive to access, for example emerging markets equity. |
Index vehicle
There are two common types of index vehicles:
- An index fund
- An Exchange Traded Fund (ETF)
Index funds and ETFs are extremely similar – both are managed to track the performance of an index. The fundamental difference is ETFs can be bought and sold throughout the day on a stock exchange, whereas index funds trade at a single valuation point. Investors can choose what kind of flexibility they require from an index fund, and decide which type is more appropriate for their needs.
A summary of the key features of the two types of index vehicles are presented below:
| Index funds | ETF | |
|---|---|---|
| Vehicle structure | Resembles pooled funds | Resembles shares |
| Buy and sell venue | • Direct from the fund company • Fund platforms |
• Stockbrokers • Fund platforms |
| Pricing | Once a day with price at valuation point | Prices change throughout the open market hours |
| Dealing frequency | Daily | Intraday |
| Minimum investment | Varies | 1 share |
| Exposures | Typically offers core asset classes | Typically offers a wide range of asset classes and sector exposures |
| Transparency of holdings | Varies | Daily disclosure of fund holdings |
Why BlackRock
BlackRock has been managing index strategies for over 40 years. We pioneered the first institutional index strategy in the 1970s. Today, BlackRock is a leading global provider of index solutions.
Our global footprint and scale enable us to access a broad range of market opportunities.
Our index funds have been used for many years by our clients as building blocks within their portfolios.
