U.S. Markets close in 19 mins

Are Investors Loyal to an ETF’s Index?


After Vanguard’s decision to swap out a bundle of exchange traded fund underlying MSCI indices for FTSE and CRSP benchmarks in an attempt to cut costs, the industry has put the spotlight on indexing. Nevertheless, when it comes down to it, it’s the investor’s opinion that really matters.

“The lion’s share of asset managers are saying the index does matter,” Ken O’Keeffe, managing director of investable products at Russell Indexes, said in an Ignites article. “Why? Because it matters to their clients.” [ETFs Target Indices to Lower Fees Even More]

Especially in the institutional space where some are mandated to follow certain benchmark indices, brand recognition in broad-market benchmarks and trust in index construction matter. Consequently, some ETF managers have followed suit, adhering to blue-chip indices even though there are cheaper options available. [Vanguard Shift Puts Focus on ETF Benchmarks]

Dodd Kittsley, iShares head of global exchange-traded product market trends research, previously pointed out that the S&P-, MSCI- and Russell-benchmarked ETFs account for 85% of U.S. equity assets, and MSCI also made up a 60% market share in emerging market ETF assets and 51% in global assets.

“Clearly, when it comes to choosing an index to track, many investors favor certain index providers for specific exposure types,” Kittsley said.

Nevertheless, the Index Industry Association, which was formed in March 2012 and is comprised of Barclays, FTSE, MSCI, Nasdaq OMX, Russell and S&P Dow Jones Index, is trying to promote innovation and health competition within the third-party index industry. [More ETF Firms Joining Self-Indexing Trend]

“The thing we all want to keep at the back of our minds is we don’t want anything to happen in the industry that will stop the innovation that has been happening,” Rick Redding, executive director of the IIA and former CME Group executive, said in the article.

For more information on ETF indexing, visit our indexing category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.