Vanguard is changing the benchmarks for 22 of its international stock index funds and U.S. stock and balanced index funds, which the company hopes will save shareholders money over time.
The company plans to transition six international stock index funds, with assets of $170 billion, to FTSE benchmarks, and 16 U.S. stock and balanced index funds, with aggregate assets of $367 billion, to new benchmarks developed by the University of Chicago’s Center for Research in Security Prices (CRSP).
“The indexes from FTSE and CRSP are well constructed, offer comprehensive coverage of their respective markets, and meet Vanguard’s ‘best practice’ standards for market benchmarks,” said Vanguard Chief Investment Officer Gus Sauter. “Equally important, and with our clients’ best interests in mind, we negotiated licensing agreements for these benchmarks that we expect will enable us to deliver significant value to our index fund and ETF shareholders and lower expense ratios over time.”
In an environment in which index licensing fees, in general, have represented a growing portion of the expenses that investors pay to own index funds and ETFs, Sauter noted that the long-term agreements with FTSE and CRSP will provide cost certainty going forward with these two index providers.
“Vanguard is the mutual fund industry’s only client-owned firm that manages its funds and ETFs at cost,” Sauter said. “Our structure, along with our ongoing commitment to keep operating costs at the lowest reasonable levels, leads to low expenses that are enduring in nature.”
Vanguard has used FTSE indexes since 2003 and employs the firm’s benchmarks for more than 20 index portfolios around the world. Six Vanguard international index funds will transition to benchmarks in the FTSE Global Equity Index Series, including the $67 billion Vanguard Emerging Markets Stock Index Fund. This fund will move from the MSCI Emerging Markets Index to the FTSE Emerging Index.
Vanguard is the first investment management firm to track CRSP’s broadly diversified benchmarks that cover the broad U.S. market, market capitalization segments and styles.
CRSP’s capitalization-weighted methodology introduces the unique concept of “packeting,” which cushions the movement of stocks between adjacent indexes and allows holdings to be shared between two indexes of the same family. This approach maximizes style purity while minimizing index turnover.
“CRSP is highly regarded and experienced in the creation of market databases, and its innovative packeting methodology is expected to minimize transaction costs during periodic index rebalancing,” said Sauter.
Vanguard is one of the world’s largest investment management companies and a leading provider of company-sponsored retirement plan services.