There are over $208 billion in assets in SPY, the SPDR S&P 500 ETF.
State Street which owns the SPDR ETFs doesn’t get to use the S&P name without paying for it.
How much revenue does S&P Global (SPGI) make from licensing its name to ETF products?
In the recent quarter, S&P Global’s S&P and Dow Jones Indices division earned $164 million in revenue. The revenue came from $914 billion in AUM in ETFs carrying the S&P or Dow Jones brand.
The bulk of this revenue, $100 million, came from Asset Linked Fees. This is the fee S&P Global earns from licensing its brand.
$100 million equates to a 0.01% fee per quarter on all assets in S&P/Dow Jones branded ETFs.
Given there is $914 billion in S&P/Dow Jones branded ETFs, what is the total AUM across all ETFs? What is the market share for S&P Global branded ETFs?
In April of 2016 the total global AUM in ETFs was reported at $3.07 trillion. In the 10Q released July 28, 2016, S&P Global reported an ending AUM of $855 billion in S&P/Dow Jones branded ETFs. Roughly 28% of all ETF AUM is in S&P/Dow Jones branded ETFs.
What is the growth expectation for the ETF industry?
ETF Growth & S&P Global Earnings Potential
In the next 5-8 years the ETF industry could reach $10 trillion in assets.
That’s the view of Kiran Pingali, head of ETF product development at Bloomberg Tradebook. In an interview with Markets Media, Pingali said that as a more passive investment compared with mutual funds or equity securities, total ETF assets under management may increase to as much as $10 trillion over the next five to eight years, up from a bit more than $3 trillion currently.
If S&P Global can maintain it’s market share at 28% then S&P/Dow Jones branded ETFs will have $2.8 trillion in AUM.
Licensing fees of 0.01% per quarter, generates $280 million per quarter. Or $1.12 billion on an annual run rate.
At 5 years, the compound annual growth rate for Asset Linked fees is 22.86%. At 8 years, the compound annual growth rate is 13.74%.
The growth of ETFs and the shift towards index investing is a major trend in financial markets. S&P Global is well positioned in this trend with its S&P/Dow Jones brands. The largest, most followed index is the S&P 500.
Licensing is a high margin, high return on capital business for S&P Global. The more the ETF business grows, the more free cash flow S&P Global can return to shareholders.