Nasdaq’s Jacobs: Self-Indexing Is OK, But...

October 28, 2013

Self-indexing is no threat to established index firms, Nasdaq’s Jacobs says.

Nasdaq is a lot more than the No. 2 U.S. stock exchange. It has a growing indexing unit that is at the center of many important trends. That includes marketing of indexes behind the growing suite of BulletShares target-date maturity corporate bond ETFs. Most recently, it rolled out eight new BulletShares indexes last week that will enable investors to ladder automatically.

John Jacobs, a senior executive at Nasdaq’s indexing arm, and David Krein, head of index research at Nasdaq, recently spoke to IndexUniverse staff writer Hung Tran about those new indexes. They also talked about the self-indexing trend that’s sweeping through the world of ETF sponsors, saying they’re not threatened by them in the least. Let’s start with the new laddered BulletShares indexes. What was the motivation behind the launch? Why do you feel that now is the time to launch them?

John Jacobs: The challenge when you’re looking at bond indexes is how to control duration risk. Some indexes are going to shorter durations, but due to their construction, their duration varies over time. The BulletShares Ladder Indexes have fixed this by equal-weighting across each maturity year so the user-experience is a defined and constant maturity. The result is a smoother return pattern and the potential for lowered volatility.

Nasdaq and Accretive Asset Management saw an opportunity and developed a partnership last summer to create indexes to serve the high-yield and corporate debt markets.

David Krein: The innovation is clearly the standout component of the product. BulletShares were first to market in this category and they’ve been very good at the creative piece. We’ve been very good at bringing the product forward so, for example, the assets under management for the family were up week-over-week, every week in the third quarter.

It’s that type of statistic that shows that dollars are going to continue flowing into the product. We’re gaining advisor mind share, so to speak, because they’re learning how to use the products. What key points should investors take away from the index?


Jacobs: You’re getting the advantages of getting the target you want. If your goal was 2018 maturity, you’re getting it in a diversified manner because you’re getting a slew of bonds as opposed to a single one. So it’s all the benefits of indexing diversification while still allowing you to achieve your goal.

Krein: Ladders are a fairly common technique for approaching the fixed-income market. The BulletShares family lends itself to that in many ways—having the corporate curve as well as the high-yield curve, and now the ladders that sit on top. Investors will have more choices to access this tool set.



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