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Digital Subscriptions > The Hedge Fund Journal > Issue 112 - March | April 2016 > Futures versus ETFs: Every Basis Point Counts

Futures versus ETFs: Every Basis Point Counts

A look at how futures have become a cost-effective alternative

As equity markets remain volatile, futures markets are reaching new volume records. In 2015, CME Group open interest was up 5%, while Q1 2016 volumes on E-mini S&P 500 futures were up 31% year-over-year, as shown in Fig.1. Both futures and ETF markets have shown impressive growth, though the growth of the ETF market has not come at the expense of futures, according to Tim McCourt, CME Group’s managing director and global head of equity products.

“ETFs have taken market share away from mutual funds, not from futures, with index tracking mutual funds having seen $170bn of outflows between 2013 and 2015,” McCourt says.

Fig.1 E-mini S&P 500 Index Futures quarterly ADV and open interest Q1 2013 - Q1 2016
Source: CME Group

Every basis point counts with passive index investing; this belief was a driving force behind CME Group’s The Big Picture: A Cost Comparison of Futures and ETFs, updated to reflect 2015 data and available to readers as an insert in our hard copy magazine or via a link on our website. This report provides an analytical framework for comparing the costs of trading or investing in the S&P 500 equity index via E-mini S&P 500 futures and the three largest S&P 500 ETFs (SPY, IVV and VOO), for different types of investment strategies, investor types and holding periods. The analysis is based on a range of assumptions that CME Group enumerates as typical for many larger investors.

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