The European Securities and Markets Authority (ESMA) has published a statement providing details of its work on closet index tracking funds.
ESMA conducted research on a sample of 2,600 funds for the period 2012-2014 to determine whether it could find any indication of closet indexing at an EU-wide level. It reports that quantitative metrics, such as the percentage of a UCITS’ portfolio that does not coincide with the underlying equity benchmark, indicated between 5% and 15% of UCITS equity funds could potentially be closest indexers. ESMA also reviewed the investor disclosure documents of the funds concerned in order to see how they described their management strategy, and found they tended to confirm the quantitative analysis results.
ESMA will continue to work with national regulators to determine further actions as the analysis gives only a first indication of whether particular funds are closest index trackers.
View ESMA updates on supervisory work on closet indexing, 2 February 2016