More than 10% of S&P 500 Assets Now Passive

More than 10% of the market capitalisation of the S&P 500 index is now held by passive funds and index strategies, according to S&P Dow Jones Indices (S&P DJI).

The index provider said the amount of money directly indexed to the S&P 500 rose by “nearly 20%” during 2013 to $1.9 trillion. This included $282 billion in exchange-traded funds.

S&P 500’s collective market capitalisation is roughly $18.4 trillion, following an 8.7% rally this year, meaning passive strategies account for roughly 10% of the index’s total assets. However, the true amount of passive assets tracking the index is even higher as a further $67 billion is invested in products and strategies tracking S&P’s Composite 1500 and Total Market indices, which include exposure to the S&P 500.

Approximately $7 trillion of assets used the S&P 500 as a benchmark at the end of 2013, up 22% in 12 months, the company estimated.

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Morningstar columnist and researcher John Rekenthaler earlier this month claimed passive investing was “now the mainstream approach” as investors have increasingly lost faith in active management.

S&P DJI said $2.6 trillion was directly indexed to its range of benchmarks—of which there are more than 1 million.

In addition, S&P DJI pointed out that roughly $52 billion was now directly indexed to its factor-based indices through smart beta products and strategies. These indices include S&P 500 Low Volatility, S&P Global Intrinsic Value, and S&P 500 Dividend Aristocrats.

The bank has agreed to pay more than $9 billion in a cash penalty and $7 billion in aid to homeowners for selling flawed mortgage securities prior to the crisis.

Bank of America has agreed to pay a record fine of $16.65 billion to settle a residential mortgage-backed securities (RMBS) lawsuit with the US Department of Justice.

According to US Attorney General Eric Holder, the bank will pay $9.65 billion in fines as well as $7 billion of relief to homeowners.

“As part of this settlement, Bank of America has acknowledged that, in the years leading up to the financial crisis that devastated out economy in 2008, it, Merrill Lynch, and Countrywide sold billions of dollars of RMBS backed by toxic loans whose quality, and level of risk, they knowingly misrepresented to investors and the US government,” Holder said in a statement. “By holding Bank of America accountable for its actions, it returns hard earned money our members and employers contributed to the system.”—Henry Jones, chair of CalPERS Investment Committee.

The Charlotte, North Carolina-based bank had acquired Countrywide, one of the nation’s biggest subprime mortgage lenders, and investment bank Merrill Lynch in 2008. All three companies had been accused of selling misrepresented mortgage-backed securities.

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Holder said Bank of America “knowingly, routinely, falsely, and fraudulently” sold loans with “material underwriting defects” as reliable investments.

“Worse still, on multiple occasions—when confronted with concerns about their reckless practices—bankers at these institutions continued to mislead investors about their own standards and to securitize loans with fundamental credit, compliance, and legal defects,” he said.

The bank’s chief executive Brian Moynihan said the settlement “resolves significant remaining mortgage-related exposures” and “allows us to continue to focus on the future.” According to the New York Times, the bank had spent nearly $70 billion on legal issues related to mortgage securities since the financial crisis.

The federal prosecutors said no individuals at the bank would be criminally charged as part of the civil settlement.

The largest US public pension plan is said to also benefit from Bank of America’s settlement. The California Public Employees’ Retirement System (CalPERS) announced it could receive up to $250 million in damages from the bank.

“By holding Bank of America accountable for its actions, it returns hard earned money our members and employers contributed to the system,” said CalPERS Investment Committee Chair Henry Jones.

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