Vanguard has created a suite of ETFs as an extension of their patented share-class mutual fund structure, which provides lower costs and potential for improved tracking. Additionally, this allows investors to view past performance of the fund’s other share classes.
“A separate share class of an existing fund significantly reduces start-up costs compared with the costs to launch a stand-alone ETF,” Buckley said. “We are also able to leverage economies of scale in the underlying fund to minimize operating and trading costs for ETF investors.”
Vanguard Group recently switched 22 of its ETF benchmarks to FTSE and Center for Research in Security Prices, or CRSP, indices to help lower overall costs. A number of other factors also goes into selecting an underlying index.
“First and foremost, we look at an index’s ability to measure returns accurately from a designated market segment,” Buckley said. “We then take a look at five characteristics of a provider’s construction methodology: objectivity, adjustment for float, approach to market capitalization, categorization of value versus growth and rebalancing.”
For more information on the ETF industry, visit our current affairs category.
Max Chen contributed to this article.