The index-based and exchange traded fund (ETF) community are a threat to active management-based investment products.

Active managers stand to lose $12 billion a year in potential management fees, and hedge fund replication strategies also can cost these managers because of lost management and performance fees, reports Martin Rabkin for Centre Daily. At the moment in the United States, $1 trillion is invested in index-based products, including ETFs.

Investment performance measurement has undergone a transformation. Instead of comparing a manager’s returns against a broader market index or ranking the performance of two similar funds against one another, the process has become more concise. For that reason, it will be increasingly tough to stem the tide of indexing as investors demand more transparency and lower cost – two huge advantages of ETFs.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.