TMX’s indexing pivot bears first fruit

An index provider acquired by TMX has helped to swell the group’s overall revenues by 18% relative to the first half of 2023.

VettaFi, which the Canadian exchange bought in January 2024, is a US-based data, analytics, and indexing provider that also provides tools to help asset managers with distribution following the launch of a new fund.

The group’s financial results for the first half of 2024 showed that the value of assets tracking VettaFi’s indexes has more than doubled since the beginning of 2023, reaching $26 billion in March this year.

John McKenzie, the TMX Group CEO, told investors and analysts on the Q2 earnings call that the acquisition represented a further inroad towards the indexing sector. “TMX Vettafi strengthens our ability to serve the needs of the indexing and ETF community, an important and growing client base here in Canada and around the world,” he said.

The exchange’s data arm, Datalinx, has also gained from the addition of new indexes, expanding its portfolio of available datasets. In addition to efficiency gains from shared sales and distribution tools with the group’s existing ETF and data divisions, McKenzie highlighted the possibility of upselling by providing fund managers with listing services further down the line.

As it stands, however, the indexing sector is dominated by three providers. Taken together, S&P Dow Jones Indices, MSCI, and FTSE Russell account for more than two-thirds of global index industry revenues. One reason for this concentration is the outsized role played by brand recognition in indexing. That makes it particularly difficult for smaller players to break into the sector.

When one analyst asked McKenzie how TMX would differentiate its offering from larger index providers, McKenzie pointed to VettaFi’s analytics and ideation capabilities, which are designed to help fund managers model the potential success of future funds and determine how to market and distribute them.

He also suggested that a smaller provider would be able to design highly customized indexes for individual clients more easily and at lower cost than the larger players, noting that VettaFi “can work with a provider and do something custom for them at scale that meets the specific needs of what they’re trying to target for their funds. And that’s very difficult for a large player to do in terms of the scale, compliance … even the technology,” he said.

Analysts on the call applauded the new revenue figures coming from the VettaFi acquisition, but there was a note of skepticism when it came to growth prospects in an industry controlled by powerful incumbents. When invited by an analyst to share VettaFi’s future net flow growth estimates or projected market share gain from other index providers, TMX’s executives declined.