Exchange traded fund providers are stopping at nothing to gain the attention, and capital, of investors with the lowest costs possible. The battle started with a race to offer the lowest fees, and has since moved into changing the actual index the fund tracks.

“ETF firms see self-indexing as a way to not only serve up increasingly intricate and customized index methodologies—and ETFs that track them—but also to reduce ETF costs,” Cinthia Murphy wrote on Index Universe. “But if cost is an issue, it’s clear that if ETF providers aren’t going in the direction of self-indexing, they’re more than willing to shop around for a good deal.”

Last month, FTSE Group had announced they set up an ETP business to compete in the race for gaining more market share of passively tracking funds, reports Joe Light for The WSJ. The timing could not have been better, as Vanguard Group announced it would use FTSE indexes for six of its international funds beginning in January 2013, replacing ones provided by MSCI. FTSE charges less than money to license their indices, which cuts costs, and passes this savings onto investors. [More ETF Firms Joining Self-Indexing Trend]

However, analysts are certain that indexing fees are just a small fraction of what makes up the fees for owning an ETF. What is more important will be what the index holds, how it is run and re-balanced. The greatest impact will come from change within the indices, not the fees. [WisdomTree Welcomes ETF Fee, Index Wars]

The self-indexing trend has also added to this debate. Various established ETF providers are reducing fee costs by index building as a means to save investors money, but also as a way to create more detailed methodologies. WisdomTree, Index IQ, and Van Eck are already self-indexing and the largest ETF provider by assets, iShares, has recently filed with The Sec for approval of in-house indexing. This last move is what really brought the self-indexing trend to the forefront, reports Murphy. [FTSE Sets Up ETF Services Business]

The recent move by Vanguard Group, who ditched MSCI indices for 22 of its ETFs for legitimate indices from FTSE and CRSP was done in the name of lowering costs, but at the end of the day it does much more for investors. The change in index will transform the performance, volatility and market exposure of the fund, almost creating a new entity. Time will reveal if this is a move that is constructive or made in haste as an attempt to garner more assets.

Tisha Guerrero 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.