Index Industry Demonstrates Resilience Amidst Pandemic Uncertainty
Every industry has been impacted by the COVID-19 pandemic to varying degrees and the financial index provider industry is no exception. The industry entered the year with considerable momentum, coming off several years of strong revenue growth driven largely by the growth of the passive investing landscape.
Index providers posted strong revenue gains in the first quarter of 2020, benefiting from two months of higher average AUMs in ETFs and index-linked mutual funds and a surge in index derivatives licensing revenue in March. The industry is well-positioned to maintain its growth in the uncertain environment due to the natural hedging effect of their revenue mix: when index revenues from ETFs and mutual funds go down, index licensing revenues for derivatives go up. Burton-Taylor forecasts that industry revenue will grow 4.4% in 2020, totaling an estimated $3.9 billion for the year.
Burton-Taylor expects that revenue trends observed in recent years will not only continue but become more pronounced in 2020. ESG index revenue, which has been the fastest growing index segment in recent years, is expected to continue its torrid growth at 31.4% for 2020, followed by Fixed Income Index revenue and Factor Index revenue segments.
The industry will also see strong growth from the Other Revenue segment (includes index licensing for derivatives, OTC products and structured products), supported by the increase in market volatility, which will offset the projected decline in asset-based fees from ETFs and mutual funds for the year.
The Impact of COVID-19 on the Index Industry — New Burton-Taylor report
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David Tabaka is an Analyst at Burton-Taylor International Consulting, part of TP ICAP Group, where he is responsible for research and analysis covering Global Exchanges and Index Providers.