In the hyper-competitive world of indexing, Nasdaq looks to cast a bigger shadow, Jacobs says.
Nasdaq OMX Group’s planned acquisition of Mergent Inc.’s index business will make Nasdaq one of the largest purveyors of dividend-focused indexes. More broadly, the deal is part of Nasdaq’s plan to become a full-service index provider.
An increasingly broad array of capability will keep Nasdaq a strong player in an indexing marketplace that is growing much more competitive, John Jacobs, the executive vice president of the company’s Index Group, told IndexUniverse Correspondent Cinthia Murphy. As far as that ambition goes, indexes targeting dividend-rich stocks are just one piece of Nasdaq’s plans.
Murphy: Can you put this acquisition in perspective, as in, why now? Dividend stocks have been a hit with investors, so is this move designed to expand your presence in a hot segment of the market, or is this part of a bigger expansion plan?
Jacobs: I think it’s both. We’ve been on a growth tear in the indexing business lately: We’ve launched commodities indexes; Shariah and green indexes; our first Treasurys family. We’ve been expanding asset classes as fast as we can. Later in this quarter, we’re going to launch our global family of indexes in equities, and our new equity calculator is also coming out. We want to be able to offer a full suite of services to our customers.
This acquisition gives us dividends, which is popular now, but we think it will be popular later, too. This is not a new style, and certainly will not go away. We also like the technology Mergent has. We are primarily an equity indexer, and they have a great fixed-income calculator, so there are a lot of synergies for us. It’s a very important place to be.
Murphy: As far as dividends go, more than $10 billion has moved into dividend ETFs so far this year. What do you make of a growing view that perhaps a bubble is forming in the dividend space? Are we running the risk of having some of these stocks be overvalued?
Jacobs: I think investing in dividends is a valuable strategy and will always be a valuable strategy. I won’t speculate on whether this is a bubble or not, but we didn’t jump into this to get into a hot sector. We went in because we wanted to expand our presence in this part of the marketplace.
In these economic times, people have been looking for yield, whether it’s in dividends or other types of products, so I won’t comment on whether we think there’s a bubble, but I will tell you that we think dividends are here to stay.
Murphy: You mentioned that Mergent has a good fixed-income calculator. Is fixed income another segment where you see Nasdaq growing its presence?
Jacobs: Definitely. We went from a limited-purpose equity indexer to expanding our offerings into an entire U.S equity sectors lineup—down to four subsectors. We have launched the Shariah family, a green family, two commodities families and one fixed-income index family. This deal is now going to give us dividends and give us the ability to expand into fixed income.
Later on this year, we have 24,000 global equities indexes coming out. So, yes, this deal is one of the stepping stones as we look to be a full-service indexer.