More and more investors are beginning to focus on transaction costs, and in less liquid market segments also on market impact costs. Clearly, good liquidity is an important factor in reducing market impact. International investors in particular are increasingly looking for liquid benchmarks and securities. This is reflected in the large cap bias found in many of the newer indices and exchange traded funds that are often based on very focused indices like, for example, the iBoxx Euro Liquid Corporate Index.

Investors’ benchmarks, strategies and horizons change. Indeed the pace of change has accelerated in recent years, be it moves from pure government benchmarks to aggregate indices, from broad market to large cap benchmarks, or to indices that include issuer constraints. In these circumstances, institutional investors are becoming more focused on transition costs as they change their benchmarks. Index series that encompass a wide range of benchmarks and styles with similar methodologies have an advantage here.