Vanguard’s recent decision to change the tracking benchmarks at its exchange traded funds is designed to lower costs for ETF investors rather than trying to find the best-performing benchmarks, industry observers say.

“Vanguard has made it very clear that their motivation for the change is simple— to cut costs,” says Daniel Wiener, editor of The Independent Adviser for Vanguard Investors.

The expense of licensing an index has risen over the years, and in a recent webinar Vanguard Chief Investment Officer Gus Sauter explained that Vanguard had identified an area to save “tens, if not hundreds of millions of dollars over time,” Wiener wrote in a newsletter.

In a recent interview with ETF Trends, Vanguard Senior Investment Strategist Joel Dickson said a larger portion of ETF fees have involved index licensing costs.

Dickson said Vanguard saw an opportunity to help return the economies of scale back to the ETF investor with new index licensing agreements. Meanwhile, major index providers “have converged over the past decade in terms of best practices and methodology,” he added. [Vanguard’s Joel Dickson on ETF Index Switch]

‘Considerable savings’

Last month, Vanguard said it plans to drop indices managed by MSCI (NYSE: MSCI) for benchmarks overseen by FTSE and the University of Chicago’s Center for Research in Security Prices (CRSP). The move is “expected to result in considerable savings for the funds’ shareholders,” the company said. [Vanguard Changing Indices for ETFs]

Wiener said the most notable difference in all the index changes involves Vanguard MSCI Emerging Markets (NYSEArca: VWO).

“MSCI classifies South Korea as an emerging market while FTSE considers it to be a developed country; hence, it will be deleted from the emerging fund’s portfolio. As South Korea is one of the largest countries in [MSCI] Emerging Markets Index at 15% or so of assets, the difference is not insignificant,” he wrote. [Emerging Market ETF Battle: Vanguard vs. iShares]