The battle for index dollars is expected to remain red hot this year as the smaller players, after consolidating their own slight power in 2004, keep pressure on the industry's two behemoths.
"Investors are increasingly interested in the use of tools which enable them to put together broad-based representations of the market quickly and easily," said Kelly L. Haughton, strategic director of Russell indexes at Russell Investment Group, Tacoma, Wash. "As such, I see the use of indexes to be growing in 2005."
Russell and Standard & Poor's, New York, are the top two index providers to institutional investors. The companies, which have been waging a fierce advertising battle for the attention of money managers, plan sponsors and pension fund consultants, have a combined market share of more than 90% in the United States.
"It is a competitive landscape, to be sure, but I believe S&P is very well positioned as a leading index provider," said Lawrence Olsen, vice president of index services at S&P. "We intend to leverage this leadership position to exploit opportunities of the coming year, which are to provide indexes for every investment need."
The stakes are high: More than $2 trillion is benchmarked to Russell indexes; $3.5 trillion is linked to the S&P 500 index, either through direct investments in derivatives or benchmarked to it; and Morgan Stanley Capital International has more than $12 billion linked to its flagship Europe, Australasia and Far East index. No figure could be obtained for the Wilshire-Dow indexes.