Almost three quarters (72%) of European market traders believe that the trend towards passive investment at the expense of active management will continue next year, according to a survey.
The survey, of 185 traders across Europe, also found that just 40% of respondents feel that the continuing trend, fuelled by cost pressures and increased regulation, will be positive for their companies.
Conducted by the Six Swiss Stock Exchange, the survey found that 85% of traders believe that a further rise in passive investing could provoke changes in global markets.
Further findings were that regulation, such as MiFID II, the EU’s revised capital markets legislation, will be the biggest challenge for firms over the next 12 months.
In addition, the survey found, trading activity next year will mainly be driven by the actions of the European Central Bank while regulation is expected to have more influence than Brexit.
Traders said the main drivers of passive investing were cost-efficiency (44%) followed by the introduction of MiFID II regulation in January 2018 (31%), while the trading environment (17%) is not expected to strongly influence the balance between active and passive investing.
Traders also raised concerns about the trend with 44% saying there was a risk to price formation from current levels of trading in passive strategies.
On employment prospects, traders were optimistic with some 61% saying their company would employ about the same or more people in three years’ time compared with 48% in the 2016 survey.
Of the 185 respondents from across Europe 61% traded in shares, 14% in fixed income, 13% in structured products and 12% in exchange-traded products or funds.
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