“Much of Vanguard’s recent growth has come from its exchange traded fund business. The firm’s U.S. market share in ETFs has increased 29% in the past two years,” according to the Reuters report. “It now holds 17.9% of the market, whittling away at the dominance of competitor BlackRock … which has seen its market share fall to 40.6% from 46.6% over the same period.”

Last month, BlackRock CEO Larry Fink said the firm plans to cut management fees charged by some of its core-strategy iShares ETFs. [iShares to Cut Some ETF Fees]

Vanguard’s announcement Tuesday signals the ETF cost war is spilling over into the index business. Benchmark providers such as S&P, Dow Jones and MSCI typically charge fees to allow asset managers to license their indices.

Shares of MSCI (NYSE: MSCI) tumbled nearly 30% Tuesday after Vanguard said it was dropping MSCI indices at 22 of its funds, including ETFs. [MSCI Shares Plunge]

MSCI’s annualized revenue and operating income associated with the Vanguard funds being transitioned are approximately $24 million, MSCI said in a statement.

“An expense ratio should be just one factor that investors look at in weighing different investment choices. Because the Vanguard ETFs will use different benchmarks going forward, investors will need to understand what is inside each from a sector and country diversification standpoint as well as the risk traits of the underlying holdings,” said Rosenbluth at S&P Capital IQ.

“This move is similar to an active mutual fund making a manager change. The construct of the ETF will be different and investors need to rethink if the ETF will have the best performance, risk and cost attributes vis-a-vis their alternatives,” the analyst said.