Renshaw attributed the dampened effects to the rise of passive investing and the increased role of authorized participants whom help keep ETFs running smoothly.

Authorized participants, or APs, create and redeem ETF shares. They would buy stocks that are expected to fall out of an index as they can make a profit by exchanging them for a ETF shares, which in turn would support the share prices and reduce the index effect.

Renshaw also argued that the declining index effect has contributed to ETFs being even cheaper than originally supposed for investors.

“It means a buy-and-hold investor in an ETF is having even less costs,” Renshaw said.

Furthermore, the increased reliance on electronic and high-frequency trading, along with low market volatility over the recent years, have contributed to the diminished index effect since 2008.

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