Vanguard completes switch to lower cost indexes -official

NEW YORK, June 28 Fri Jun 28, 2013 4:51pm EDT

NEW YORK, June 28 (Reuters) - Vanguard Group completed the transition of 22 of its funds to new benchmark indexes on Friday, an official at the third-largest provider of exchange-traded funds (ETFs) said.

Joel Dickson, senior investment strategist at Vanguard, told Reuters the switch from the widely used MSCI Inc indexes to those provided by FTSE and the University of Chicago's Center for Research in Security Prices would lower licensing fees and ongoing transaction costs for the firm's funds. (FTSE is owned by the London Stock Exchange Group .)

On Friday the $70 billion Vanguard Emerging Markets Stock Index Fund and its ETF shares began tracking the FTSE Emerging Index. These funds formerly tracked the MSCI Emerging Markets Index.

Vanguard, based in Malvern, Pennsylvania, is among the firms that have used their massive market share in ETFs to drive expense ratios down. Its main ETF competitors are BlackRock and State Street Global Advisors, a division of State Street Corporation.

"Unlike most other consumer products, there is a direct relationship in the investment management industry between cost and quality," Dickson said.

ETFs allow investors to trade shares in a basket of securities like stocks. The funds are typically passive investments that emulate the performance of a market-tracking benchmark, like the S&P 500 and those provided by MSCI and FTSE.

On Friday the $70 billion Vanguard Emerging Markets Stock Index Fund and its ETF shares began tracking the FTSE Emerging Index. They used to be benchmarked to the MSCI Emerging Markets Index.

The transition to the new indexes began last fall, and Vanguard executives say the move has not dented new cash flows into the fast-growing ETF product category.

Vanguard has more than $274 billion assets under management in the nearly $1.5 trillion ETF industry, according to IndexUniverse, a leading industry trade publication.

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