13 May 2019 Double-Digit Growth Continues for Index Industry

Global index revenue increased 13.4% in 2018, reaching a record $3.5 billion. Amid the double-digit industry growth, the proliferation of passive investing products is creating an environment for incumbent and emerging providers alike to compete for market share.

Strong top-line growth continues to pace the financial index industry, with industry revenues increasing at double-digit percentage rates in each of the past two years. Global index revenue increased 13.4% in 2018, reaching a record $3.5 billion, according to a new benchmark study published by Burton-Taylor International Consulting (part of TP ICAP’s Data & Analytics division).

FTSE Russell, S&P Dow Jones Indices, and MSCI finished in the top three spots in market share in 2018, holding a combined 71.6% share of industry revenue. These players leverage their brand equity as well as diversified index and revenue mixes in capturing and maintaining their market share. More than 80% of index industry revenues is concentrated in five industry participants. However, the proliferation of passive investing products is creating an environment for incumbent and emerging providers alike to compete for market share in an industry that continues to grow at a double-digit rate.

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ESG and Factor Index Revenues Surge

The ESG and Factor index segments recorded the fastest revenue growth in 2018, driven by increased demand for niche index products. This development has produced a more diversified index mix at the industry-level. While some incumbent index providers are well-positioned to compete in these segments, emerging providers can leverage their agility to capture share in these fast-growing segments.

Revenue from ESG indices surged 30.6% in 2018. Increased appetite for sustainability and social responsibility-focused investing strategies is resulting in the dramatic proliferation of ESG indices and driving revenues in this segment.

Demand for niche index products is also driving revenue growth in the Factor index segment, with revenues increasing 25.5% in 2018. In particular, increasing demand for active management strategies baked into passive investing vehicles is a major driver of this segment’s revenue growth. The proposed tie-up between Deutsche Boerse’ STOXX/DAX index business and Axioma, if completed, is sure to have an impact at the company-, factor segment- and industry-level. This tie-up reinforces the trend of converging analytics and indexing capabilities under one umbrella. If completed, the transaction would provide STOXX with a more diversified regional revenue stream, with more revenue coming from the Americas, and more index customization capabilities.

Asset-Based Fees from ETFs and Index Derivatives Revenue Fuel Industry Growth

Burton-Taylor also analyzes the revenue mix of index providers. All revenue segments saw strong growth in 2018, supported by solid revenue gains from asset-based fees from ETFs and passive mutual funds and a surge in equity index derivatives revenue. Increased demand for index data subscription and custom indexing supported an 8.8% increase in subscription-based revenue.

The year was marked with periods of increased market volatility, particularly in the first and fourth quarter, prompting revenue from exchange-traded derivatives to rise as asset-based fees would correlatively dip. Index providers with diversified revenue mixes (subscriptions, asset-based fees, and licensing fees for basis of derivatives) were best positioned to benefit from the hedging effect between asset-based fees from ETFs and index licensing fees from derivatives in 2018.

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Index Global Share & Segment Sizing 2019 Report

Burton-Taylor International Consulting recently published its second annual Index Industry Global Share & Segment Sizing 2019 report analyzing the global Financial Index Industry. This 99-page report includes detailed analysis of the following index providers: Alerian, Bloomberg, Center for Research in Security Prices (“CRSP”), FTSE Russell, Intercontinental Exchange, Morningstar, MSCI, Nasdaq, S&P Dow Jones Indices, SIX, Solactive, SIX, and others. Additionally, the report provides detailed analysis on index industry revenues at the company, segment and industry levels. For more information on this report, please click here.

David Tabaka is an Analyst at Burton-Taylor International Consulting, part of TP ICAP Group, where he is responsible for compiling research and analysis on the global Exchange and Index industry.