Last year, Vanguard was the first ETF company to shop around as it switched out a group of MSCI index ETFs for FTSE and CRSP indices. MSCI was charging Vanguard a percentage of assets under management, so the cost of licensing increased as the fund’s gained in popularity, which prevented the firm from lower costs due to its growing scale. In contrast, the FTSE and CRSP licensing agreements came with a flat fee. [Vanguard Swaps out Benchmarks on Four ETFs]
Additionally, other fund sponsors have developed in-house indices to back their ETF products. For instance, North Trust Group’s FlexShares, WisdomTree and Van Eck Global’s Market Vectors use self-constructed indices as benchmarks for their ETFs.
“If you’re in a traditional arrangement [with an index provider], there’s usually some sort of revenue sharing. If you’re a self-indexer, you won’t have that variable cost,” Shundrawn Thomas, chief executive of Northern Trust’s FlexShares ETFs, said in the article. “If you can do it at scale in a cost-effective way, there could be net benefits.”
For more information on the ETF industry, visit our current affairs category.
Max Chen contributed to this article.