Behind the TMX Deal to Buy RAFI Indices From Research Affiliates

Now, that’s a value buy. 

Canada-based TMX Group announced last week its acquisition of RAFI Indices from Research Affiliates, an investment advisor known for pioneering smart beta and using company fundamentals to identify deep-value stocks, for $490 million in total consideration. The acquisition adds some 90 indices to TMX VettaFi’s roster and more than triples the firm’s indexed assets. Rob Arnott, founding partner of Research Affiliates, said the deal will take “RAFI, and our newer strategies in cap-weighted core and growth investing, to new levels of global success.” 

Don’t Forget the Fundamentals

RAFI specializes in indices that, in Arnott’s words, reflect an academically rigorous understanding of the fundamental factors driving capital market returns. Several of its indices currently serve as the engines behind some of the market’s most popular smart beta exchange-traded funds, including the $25 billion Schwab Fundamental US Large Company Index ETF and the $10 billion Invesco RAFI 1000 ETF. 

“Our simple idea of creating an index strategy that selects and weights using fundamental measures of size, rather than price or market value, advanced the state of the art for equity investing,” Arnott said in a statement. 

TMX’d: During an investor call, TMX Group CEO John McKenzie said the RAFI Indices deal is a natural next step following the firm’s acquisition of VettaFi in early 2024. “This is the next major milestone in the evolution of TMX VettaFi,” McKenzie said. “This is a significant expansion of the business and portfolio coverage.”