Nasdaq announced Monday that it will acquire Dorsey, Wright & Associates LLC, an independent registered investment advisory firm that creates so-called "smart-beta" indexes, for $225 million. The move will make Nasdaq one of the largest providers of these types of indexes, and comes with plans to enhance DWA’s web-based advisor tools to increase the base of investors for the funds.
“For those financial advisors currently working with DWA, this is going to be a great opportunity for them to continue to get the things that they love about DWA and take it to a new level with the support of Nasdaq’s technology and global indexing business,” said Rob Hughes, Nasdaq’s senior managing director of index services, adding that the acquisition will help advisors bring newer and smarter investment ideas to clients.
Hughes couldn’t yet discuss specific new products, but said that Nasdaq and DWA are “just scratching the surface of what the combined entity can really create.”
Smart-beta indexes shift the weight of component stocks on factors other than market capitalization, and is one of the fastest growing types of Exchange Traded Funds. According to ETF Trends, there are now about $350 billion assets under management across smart-beta ETFs, a year-over-year increase of 30 percent.
DWA controls about 90 percent of the $4 billion market for “relative strength” ETFs, which screen securities by comparing their performace relative to their peers. The acquisition will combine DWA’s 17 ETFs with Nasdaq’s 69 licensed smart-beta ETFs, creating a total of $45 billion AUM benchmarked to smart beta.
“We intend to integrate the DWA team with our broader Nasdaq organization, leveraging DWA’s research expertise and deep relationships with the financial advisor community, and we expect to generate revenue synergies by deepening DWA’s licensing relationships with the ETF sponsor community globally,” said Nasdaq president Adena Friedman in a statement. DWA licenses its indexes to Powershares and First Trust.
Nasdaq says it has proven ability to acquire and grow an index business. In 2012, the company acquired Mergent’s index business and has since grown assets 100 percent.
The sale is expected to close in the first quarter and will be funded through a mix of debt and cash on hand. Nasdaq expects the deal will add to its earnings and not impact its financial leverage or capital return strategy.
