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 (
) 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 (
) said last month it was trimming fees on its line of exchange
traded funds to as little as 0.04% of assets a year
), 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
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.