Dave Gedeon is VP and head of research and development for Nasdaq Global Information Services. He is responsible for the index product management, development and research of Nasdaq Global Indexes. Gedeon has been instrumental in leading the expansion of Nasdaq’s Smart Beta suite with the acquisition the Nasdaq Dividend AchieversTM, Nasdaq AlphaDEX® and Dorsey, Wright & Associates’ brands. Under his management, Nasdaq has become one of the largest providers of smart-beta index strategies. Gedeon holds a B.A. in economics from Denison University.
This year marks your 12th anniversary with Nasdaq- talk to us about your various roles and how has the index business evolved over the years?
Our index research and development business has undergone significant transformation over the last decade. Today, we calculate more than 45,000 indexes compared to roughly 40 in 2005- an increase of +100,000 percent!
We are primarily focused on growth in two ways: organically and via strategic acquisitions like PHLX and OMX that helped us expand into new markets. We also acquired Mergent’s index business and Dorsey, Wright & Associates to further cement our position in the index and passive asset management space. These tuck-in acquisitions create new synergies and enable us to deepen our relationships with the ETF community.
Today, I lead our index product team focused on R&D and product management, but my career at Nasdaq began in 2005 as a Research Analyst, working on administration and research to support our indexes. Our business really took off after the QQQs – that track the Nasdaq-100 index – were transferred to PowerShares in 2007 and I became more focused on research and development in design, back-testing new indexes and global expansion.
What is the role of an index provider in helping asset managers launch products and what responsibility does Nasdaq contribute to the ongoing ETF boom?
Index providers – like Nasdaq – play a pivotal role in asset management, as the index acts as a benchmark for how the markets are performing. For example, the Nasdaq Composite is referenced millions of times daily, globally, as one of the three key indicators of the US stock market. Another of our flagship and well-known indexes is the Nasdaq-100, which has outperformed the S&P 500 for the last 10 years by 109 percent.
Our team always proactively pitches ideas to asset managers. We have a strong track record of delivering innovative and unique solutions to traditional investment problems. For example, in 2012, we developed a strategy that provides balanced access to various income streams which led to the Nasdaq US Multi-Asset Income index. We collaborated with First Trust to launch an ETF tracking the index- which today is close to $1 billion in assets under management.
We also work with the asset manager community to help refine their ideas. Our team is exceptional at taking high level concepts from a portfolio manager and transforming them into a rules-based objective index. This role allows the asset manager to focus on their strengths of distribution, portfolio management, etc., while we are able to deliver a world-class index for the benchmark.
You recently celebrated 300 ETFs tracking Nasdaq indexes- what has that journey been like and what are some other key milestones and accomplishments?
It has been a tremendous journey and a culmination of the team’s dedication and hard work- especially over the past 5 years – that has contributed to us reaching 300. Some of the biggest drivers include: key acquisitions, strengthening our domestic relationships, opening new gateways in Asia and executing on new partnerships in Australia. The infographic below highlights key launches dating back to 1999 with the QQQs, to the most recent Source ETFs in London on the Nasdaq KBW Fintech index that launched earlier this month:
Each of these ETFs that launched tracking a Nasdaq index have a different and meaningful impact on our business. Some highlight our growth from an index provider focused on Nasdaq equities to being a global cross-asset class provider (Boost WTI Oil 3x Leveraged Daily ETP, Guggenheim BulletShares 2018 High Yield Corporate Bond ETF), while others represent our success expanding relationships beyond the Nasdaq-100 in new markets (BetaShares Global Banks ETF – Currency Hedge, BMO Asia High Dividend ETF).
One product to spotlight, is the Recon Capital Nasdaq-100 Covered Call ETF- its index was originally licensed to a different provider that eventually shuttered. An upstart ETF provider – Recon – wanted a flagship product to launch, chose this index and relaunched the product several years later. The product is important, because it highlights the competitive dynamics of the ETF industry. Niche shops continue to carve out competitive advantages and discover success where some of the major players have failed.
It is one of the elements that makes this industry so compelling to be a part of and motivates our team to work hard every day.
Is there an “a-ha” or defining moment that transformed Nasdaq’s index business? What is your team’s focus and priorities for this year and beyond?
There wasn’t a singular moment for our index business and really the transformation, like a caterpillar taking its time to become a beautiful butterfly, took place the period following the financial crisis – around 2010 to 2012 – where the initial stages of the bull market began emerge. This presented a fundamental opportunity for us to grow our business and we began to invest in several areas: talent, resources and acquisition (starting with the Mergent index business in December 2012).
While priorities remain the same – build relationships, deliver quality indexes, invest in our business and take advantage of macro trends – our approach of how we tackle them has changed. We view relationships today on a more global, cross-company scale and leverage all areas of Nasdaq – from product development to sales and marketing – to grow market share.
Our index team spans several geographies- from Pasadena, California to Bangalore India, with Rockville, Maryland; Richmond, Virginia; New York City; and Stockholm, Sweden in between. We offer strong quantitative and qualitative skills that can deliver back-tests across complex factor schemas and regularly publish compelling research pieces.
What are you hearing from asset managers about the types of ETFs they want to launch? Do you have any examples to share?
In a relatively short time, ETFs have surpassed $3 trillion in assets (Mutual Funds currently hover around $16 trillion in assets). As the ETF menu continues to fill out, the importance of being able to solve a particular investment problem via rules based indexes/products has become more important. Some of the feedback we’re received from asset managers is that they want better representation of particular market segments or access to new countries. More complex products they want include asset allocation, income generation and risk mitigation.
We see both of these investment opportunities being solved in recent and upcoming launches. The Fubon Nasdaq-100 2x ETF, a geared ETF in Taiwan, is an access problem solving product. Investors need efficient ways to augment exposure to a liquid market and the ETF provides that solution. An upcoming launch with our new partner at VictoryShares, the VictoryShares US Multi-Factor Minimum Volatility ETF will be a complex product designed to provide strong risk-mitigation with market beating performance.
Are there opportunities for machine intelligence and index research and development? Do you have any predictions for 2017?
Yes, we see tremendous opportunities to leverage machine intelligence as part of our index research and development process and are partnering with start-ups – like Lucena Research – to deliver higher value products to customers. These technologies enable us to create more transparent and defined paths to the desired and expected investment outcomes. We are in a great position to execute on this trend of leveraging advance technologies to deliver better results and will have more news to share later this year.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.