Nasdaq, the stock exchange company that’s also pushing deep into the world of indexing, significantly added to its index-provider profile by agreeing to acquire the technical analysis and ETF firm Dorsey Wright & Associates for $225 million in debt and cash on hand.
The transaction, which is expected to close in the first quarter of 2015, will make Nasdaq one of the biggest providers of “smart beta” indexes, Nasdaq and Dorsey Wright said today in a press release. The combined entity will bring together the 17 ETFs Dorsey Wright has its name on as well as Nasdaq’s 69 smart-beta ETFs focused mainly on dividend and income strategies.
Nasdaq Global Indexes will become one of the largest providers of smart-beta indexes, with nearly $45 billion in assets benchmarked to such benchmarks. A total of more than $105 billion is benchmarked to all Nasdaq indexes, the companies said.
The announcement of the transaction comes at a time when the world of smart-beta ETFs is all the rage. Inflows last year into such strategies were estimated to be twice that of flows into ETFs in general, based on the most liberal definitions of what constitutes smart-beta ETFs.
“Smart beta represents one of the fastest growing sectors within the ETF market,” Tom Dorsey, president of Dorsey Wright, said in the press release. “This deal will allow us to grow significantly, while continuing to create products and strategies that meet the needs of our clients.”
Nasdaq said it plans to use its distribution might to pump up market awareness of the DWA brand.
Those business development efforts will extend to different ETF providers and to products in various asset classes beyond equities, including fixed income, currencies and commodities. Additionally, Nasdaq will spearhead international expansion of DWA offerings in Canada and Europe.
Two of the more successful U.S. ETFs with the DWA name on them are:
- First Trust Dorsey Wright Focus 5 ETF (FV | C-23), $1.29 billion
- PowerShares DWA Momentum Portfolio (PDP | B-55). $1.61 billion
Nasdaq expects the acquisition will immediately add to its earnings, excluding transaction-related costs, and doesn’t expect a material impact on Nasdaq's financial leverage or capital return strategy.