MSCI Stock Plunges As Vanguard Drops Its Indexes


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Vanguard Group, the largest U.S. mutual fund manager, said on Tuesday it was switching 22 of its biggest index funds away from benchmarks provided by MSCI Inc in order to cut costs.

Shares ofMSCI ( MSCI ) plunged 30% to as low as $25.21, the lowest in over three years, on the news that one of its biggest index licensing customers had defected.

Vanguard's move comes as other managers of index funds are also moving to cut costs.Charles Schwab ( SCHW ) said last month it was trimming fees on its line of exchange traded funds to as little as 0.04% of assets a year whileBlackRock ( BLK ), the top ETF manager, has said it plans to announce price cuts soon for its lineup of iShares ETFs.

Vanguard said it would shift six international stock funds with $170 billion of assets to track indexes from the FTSE Group. And 16 U.S. stock and balanced funds with $367 billion of assets will switch to indexes developed by the University of Chicago's Center for Research in Security Prices.

The change affects both mutual funds and ETFs, Valley Forge, Pa.-based Vanguard said. "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," said Vanguard CEO Gus Sauter.

MSCI said the switch is expected to be phased-in over a number of months starting in January 2013 and covers Vanguard funds that generated annual revenue and operating income of about $24 million from licensing fees. The New York-based firm reported operating revenue of $901 million and operating income of $322 million in 2011.

But MSCI CEO Henry Fernandez could do little in a conference call with analysts to assuage investors' over fears that other customers might follow Vanguard's move.

Still, BlackRock said it was sticking with MSCI indexes on its iShares family of funds.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing Mutual Funds
Referenced Stocks: BLK , MSCI , SCHW

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