It is fair to say that ETF experts and casual followers of the
asset class alike now know that Vanguard is changing indexes on
22 of its funds. The news
jolted the ETF world last week
as Vanguard said it is ditching 22 MSCI indexes in favor of FTSE
indexes for six of its ETFs and new benchmarks developed by the
University of Chicago's Center for Research in Security Prices
(CRSP).
The move by Vanguard, the third-largest U.S. ETF sponsor, was
treated as earth-shattering because it applies to marquee funds
such as the Vanguard MSCI Emerging Markets ETF (NYSE:
VWO
), the Vanguard MSCI Europe ETF (NYSE:
VGK
) and the Vanguard Total Stock Market ETF (NYSE:
VTI
).
Vanguard said the index changes are designed to lower costs
for investors. There is no doubt investors like lower fees, but
the more important question is how index changes benefit (or
hinder) returns. Fortunately, Vanguard is not the first ETF
issuer to drop one set of indexes in favor of another. Here is a
look back at how some ETFs performed after being tied to new
benchmarks.
Global X NASDAQ China Technology ETF (NASDAQ:
QQQC
)
In December 2011, the Global X NASDAQ China Technology ETF
dropped the Solactive China Technology Index in favor of the
NASDQ OMX Technology Index. The index change took place on
December 15. Since then, QQQC has jumped 5.2 percent. Of course,
there are other factors to consider such as market environment,
risk appetite, sector preferences at the time and others, but
QQQQ down 16.6 from the start of 2011 through the day before the
ETF changed indexes.
PowerShares Global Water Portfolio (NYSE:
PIO
)
The PowerShares Global Water Portfolio switched to the NASDAQ OMX
Global Water Index from the Palisades Global Water Index
in early March
. In just over seven months since the index switch, PIO has
dropped almost 1.9 percent.
Again, other factors have to be considered, but it is worth
noting PIO jumped 12.3 percent from October 2011 through the day
the index change was made in March 2011.
PowerShares Water Resources Portfolio (NYSE:
PHO
)
Like its globally focused cousin, PIO, the PowerShares Water
Resources Portfolio switched to a Nasdaq index in early March
from a Palisades index. From October through the day of the index
switch PHO was on fire, gaining almost 23 percent. Since the
index change, PHO has gained five percent.
Combine that small gain with PIO's post-index change lethargy
and it is evident that these two funds have probably been
impacted more by some wind coming out of the sails of water
stocks ore than index changes.
Five SPDRs Funds
In late October 2011, five SPDRs funds dropped KBW indexes in
favor of Standard & Poor's indexes. The affected funds are
now known as the SPDR S&P Bank ETF (NYSE:
KBE
), SPDR S&P Capital Markets ETF (NYSE:
KCE
), SPDR S&P Insurance ETF (NYSE:
KIE
), SPDR S&P Mortgage Finance ETF (NYSE:
KME
), SPDR S&P Regional Banking ETF (NYSE:
KRE
).
In the case of all five of these ETFs, it would appear the
index switches proved efficacious. The average gain for these
funds since late October 2011 is almost 24 percent. However, it
must be noted that financials services stocks have been on fire
since then with the Financial Select Sector SPDR (NYSE:
XLF
) gaining 22 percent.
Another interesting factoid is the performance of the
PowerShares ETFs that took on the KBW indexes dropped by State
Street (NYSE:
STT
). The PowerShares KBW Bank Portfolio (NYSE:
KBWB
), PowerShares Regional Banking Portfolio (NYSE:
KBWR
), PowerShares Capital Markets Portfolio (NYSE:
KBWC
) and the PowerShares Insurance Portfolio (NYSE:
KBWC
) have an average gain of 20.3 percent since November 2011 when
the funds came out using the KBW indexes.
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