Faced with the giants of the sector, some new entrants are looking to find a place in the sun, such as Solactive, which offers a fixed price for the use of its indices.
The rapid development of listed index funds (ETFs) has largely supported the growth of index providers in recent years. But these same ETFs could well call into question the domination of a handful of players such as FTSE Russell (a subsidiary of the London Stock Exchange), MSCI, S&P Global, Bloomberg or even Nasdaq.
Indeed, competition is intense on the ETF market, some betting on price competitiveness while others prefer to play the tailor-made card. In both cases, they are turning more and more willingly to new players, ready to adapt to customer demands while maintaining prices below industry giants, such as Solactive or Morningstar. “Price compression on ETFs could have a significant impact on the market,” notes David Tabaka, sector specialist at the consultant Burton Taylor, a subsidiary of TP-Icap. “Solactive in particular is gaining ground,” he adds.
“Low cost” supplier
The German company, established in 2007, has managed to carve out a reputation for itself as a provider of “low cost” indices, with a flat rate pricing that does not depend on the value of the assets that are linked to the index. “The cost of indices is an important component of the cost price of ETFs,” underlines Matthieu Guignard, ETF development manager at Amundi. “To be competitive you have to be very vigilant about costs,” he insists.
French champion of asset management with more than 1.5 trillion euros under management, Amundi intends to increase its passive management assets to 200 billion by 2023. To achieve this, the manager launched a new range last March, known as “premium”, at a broken price of 0.05% per year, ie costs of 50 cents per 1,000 euros invested. A price made possible by its use of Solactive, and which has met with significant success: the range has collected nearly one billion euros in less than a year.
In addition to its low-cost products, the German company has developed into the “blank index” market, which consists of calculating and administering the index on behalf of a client. It is up to the latter to name it and distribute it. A solution chosen in particular by the French boutique Tobam for its MaxDiv range. It also dares more easily to launch new, potentially controversial products. Solactive thus manages several indices following Canadian cannabis producers, and the first ETF distributed in Europe on this theme will replicate one of its indices.
Thanks to its very competitive prices, Solactive now works with most ETF managers. Its indices are tracked by more than $ 500 billion in assets, making it the fourth largest player in the world according to this measure. The downside of its economic model, in terms of revenue, Solactive remains a small thumb with less than 1% of the sector’s turnover in 2018.
Other players are gradually managing to occupy niche segments. The development of smart beta (intelligent indices) and ESG thus offers new opportunities, since they require the creation of new tailor-made indices for each strategy. The number of stock market indices has thus exploded, to the point where in recent years there have been more stock market indices than companies listed on the stock exchanges. Among the new players, universities have launched themselves, such as the CRSP of the University of Chicago or the Edhec Risk Institute of the Parisian business school. Morningstar, which has built on its expertise in rating investment funds, has also launched an index provision business which has experienced strong growth in recent years.
The house clues in ambush
Faced with the high prices of historical index providers, large asset managers are working on the development of their own indices. A route taken in particular by BlackRock, Invesco or State Street. But these initiatives remain marginal, the vast majority of outstandings continuing to replicate established indices.