Given that futures price is equal to S*e^(rt), it is possible to create a synthetic investment into an index by:
- entering into an index future for the amount of money which are planned to be invested into an index
- investing this money into a risk-free bond with the same duration as the future (or just keep it in a deposit in a bank)
When such future expires, a new future can be entered into.
I see the following advantages of such strategy compared to buying an ETF:
- No need to pay an ETF's issuer's commission. This might not be a big deal for investors from the US, because there are funds with a low commission, but in my country (Russia) index ETFs take 0.6-1% as a commission
- ETFs' price follows the index only approximately, which is not true for futures
- More liquidity. Suppose you want to cash out part of your investment. In this case, you can just take the money you have on your deposit instantly and cancel out part of future position by shorting instantly. In case of ETF/stocks, you would first sell them, then wait for the settlement, then wait for the funds to be transferred to your account
- Ability to take more risk if you'd like to. For instance, instead of buying the government's bonds, it is possible to invest into A+ bonds and earn higher interest
- Margining for a risk-free rate. If you'd like to make do some trading parallel to investing, you can use the money not for risk-free bonds, but for buying stocks, which is much cheaper than what brokers charge
The only disadvantage I see is that you will have to regularly re-enter future contracts, but it doesn't seem as a big disadvantage to me.
Yet, future investing doesn't seem to be popular. Why? Are there any flows in my logic?