Another reason for the popularity of index funds, especially in the institutional market, is that comparison to widely available benchmarks makes performance measurement so easy.

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Financial services firms that rely on brokers and advisors face a threat from online channels which are accumulating assets faster than full service firms, partly because of the growing popularity of passive investments such as index funds and ETFs, he added.

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However, as index-based mutual funds and ETFs continue to gain popularity and active managers are increasingly pressured to control their performance tracking error relative to benchmark indexes, the markets could become less efficient.

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Low-cost index funds and exchange-traded funds will continue to grow in popularity as more investors shed high cost actively managed products and the advisers who recommend them.

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