Behind the exchange traded fund scene, index providers help translate an interesting strategy into a rules-based index to help money managers sell their investment process to a wider audience of investors.
ETF Trends publisher Tom Lydon spoke with Rob Hughes, V.P. and Head of Index & Advisor Solutions at Nasdaq, and Dave Gedeon, V.P and Head of Research & Development at Nasdaq, at the Inside ETFs conference that ran Jan. 22-25, 2017 to talk about the indexing process behind the growth of ETFs.
“We’re heavily invested in making sure that when we’re working with ETF issuers that we get to the point in the index development process… that gets them the best product they can to put out in the market that’s going to solve the problems that their clients are looking for,” Hughes said.
Nasdaq may come up with an innovative indexing idea and pitch it out to an issuer to bring to market.
“We find that the Nasdaq research team will put together some great concepts,” Gedeon said. “We’ll talk to our issuers friends and pitch them the idea, and say, ‘hey, you know this is a really great way of accessing multi-asset, so this is a great commodity strategy or whatever type of area that we can be focused in.'”
Alternatively, a money manager may have a great idea and turn to an index provider to bring their strategy to market through a customized index or smart beta ETF.
“The other side is that our issuer friends will come to us and say, ‘We’re looking for a solution in this space. What do you have,'” Gedeon said. “Or they’ll come and say we’re trying to transfer this strategy into an index and can you help us out.”
For instance, a lot of mutual fund providers are now looking to take advantage of the ETF space and more have turned to index providers to help the transition process. Index providers help fund managers “translate that active strategy into a rules-based transparent index that they can then turn around and sell as the ETF,” Hughes added.