ETFs key to Nasdaq indexing ambitions

Aiming to build more ETF partnerships after QQQ success

Nasdaq OMX, the exchange operator, wants to expand its activities in the exchange traded funds market as its indexing business celebrates the 15th anniversary of the QQQ, one of the most successful ETFs to track one of its benchmarks.

The Invesco PowerShares QQQ, which tracks the Nasdaq 100 index, has grown into one of the world’s most popular ETFs. It has assets of $45bn after first being launched in 1999 with $14m.

“It was the QQQ that really put ETFs on the map for retail investors,” said John Jacobs, executive vice-president at Nasdaq, who has overseen the growth of its global indexing business.

ETFs tracking the Nasdaq 100 have also been launched in China, India, Japan, Korea, Singapore and Israel.

Mr Jacobs said more launches were in the pipeline in Asia this year, with Nasdaq also expecting to see products based on its indices listed in Latin America in 2014.

He added Nasdaq intended to challenge rivals such as S&P Dow Jones Indices, MSCI and FTSE Group that have profited most from the ETF industry’s rapid growth.

“The indexing market needs to be disrupted,” said Mr Jacobs, adding that Nasdaq’s fees for index data were “only a fraction” of those charged by competitors.

Criticising other providers for extracting “exorbitant profit margins” on vanilla market-cap weighted indices, Mr Jacobs said breaking down the perception among fund managers that using these benchmarks was an investor requirement was a cornerstone to Nasdaq’s strategy for expanding in the ETF market.

Looking ahead, Mr Jacobs said index-based investment strategies were only in the early stages of adoption. He predicted deeper penetration into retirement savings plans, where ETFs are not widely used, as well as further geographic expansion and more innovation.

He pointed to the First Trust rising dividend achievers ETF, known by its ticker RDVY, and the PowerShares international buyback achievers portfolio, known as IPKW, as examples of recent innovative launches based on Nasdaq indices.

Nasdaq is also working on making improvements to its value and growth indices. A white paper on style investing is due for publication later this year.

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