Shares of investment research firm and index provider MSCI (NYSE: MSCI) plummeted 28% Tuesday on heavy volume after Vanguard said it was dropping the company’s benchmarks at many of its index funds and ETFs. Vanguard’s decision will result in MSCI losing revenue from index-licensing fees.
Vanguard announced Tuesday morning that it plans to change the tracking indices at 22 funds, including ETFs.
The asset manager will transition from the current MSCI benchmarks to indices managed by FTSE and the University of Chicago’s Center for Research in Security Prices (CRSP). [Vanguard Changing Indices for Several ETFs]
MSCI said the Vanguard funds being transitioned include $131 billion of assets under management, in 14 ETFs benchmarked to MSCI’s U.S. equity indices and 8 ETFs linked to MSCI’s global equity indices.
The transitions will be staggered and are expected to occur collectively over a number of months, Vanguard said.
“MSCI’s annualized revenue and operating income associated with the Vanguard funds being transitioned are approximately $24 million. The impact to reported financial results is expected to start in January 2013 as the funds are transitioned,” MSCI said in a statement.
“We are disappointed that Vanguard will no longer use our indices as the basis for these exchange traded funds,” said Baer Pettit, head of MSCI’s Index Business.
“The ETF market in North America is competitive and as it evolves, we will work with those ETF providers who seek to utilize independent, well-respected, and high-quality equity indices in their products. MSCI indices have been developed over 40 years to meet the specific needs of the world’s most demanding and sophisticated investors,” Pettit added.
MSCI is a leading provider of benchmark indexes and portfolio risk analytics tools to institutional investors around the world, according to Morningstar profile of the firm. “The company’s products play a significant role in many aspects of investment decision-making process, including portfolio construction, benchmarking, and risk analysis,” it said.
MSCI indices form the basis of many ETFs managed by BlackRock’s iShares, the largest ETF provider. “MSCI is the gold standard of global and international equity indexes – the near-universal choice of professional investors,” said Mark Wiedman, global head of iShares, in a statement Tuesday morning. “We plan to deepen our partnership with MSCI to help deliver the highest quality products and portfolio construction to our clients.”
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