November 8, 2019

Morningstar Indexes has shown impressive growth. Can you provide any additional detail on the major drivers of growth in assets linked to Morningstar Indexes? Since inception, what percentage of growth comes from your free offerings vs. your specialized indexes? Where do you believe you can take this opportunity longer term?

Our Index solutions have grown substantially in recent years and remain a focus area of investment for us. We have seen steady improvement since we started the business in 2002, though growth has spiked in the recent years as the business has scaled. A number of factors are at work here, including that we are benefitting from the secular shift from active to passive fund management. The growth of index funds and ETFs has increased demand for indexes that serve as the basis for passive investment vehicles. The primary revenue source for Morningstar Indexes is assets in investment products linked to our indexes.

There are two distinct type of solutions—beta and strategic beta. The total assets in the investment products linked to our indexes as of September 30, 2019 were $64B, up 41% year-over-year. Strategic beta offerings, which leverage proprietary Morningstar research and are higher margin, make up two-thirds of the assets. Beta products, which are cap-weighted market exposure indexes, are growing faster—up 42% year-over-year.

The beta indexes are part of the Open Index Project (OIP). We launched OIP three years ago to address an industry need to mitigate the rising cost of benchmarking. Since then, we have extended the application to index-linked product creation. We have seen a surge in demand from asset managers in embracing our beta indexes, across the globe. JP Morgan, Lyxor (the ETF arm of Société General) and National Bank of Canada are some of the largest issuers who have adopted Morningstar beta indexes for creating low-cost investment products. We believe that frustration with legacy providers’ high-cost models is rising and will continue to benefit us. If you’re among those feeling these effects, give us a call. We’re keen to help.

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