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The Globe and Mail

Vanguard aims to lower ETF fees by switching index providers

An employee of Vanguard Group Inc. answers calls from investors at the company's headquarters in Malvern, Penn., Feb. 26, 2008.


Vanguard Group Inc. plans to switch to cheaper index providers for a batch of U.S. and Canadian-listed exchange traded funds (ETFs), a move that will eventually help lower fees.

The new indexes for the Vanguard ETFs and some U.S. index mutual funds will enable the lowering of expense ratios over time, Vanguard's chief investment officer Gus Sauter said in a statement on Tuesday. "With our clients' best interests in mind, we negotiated licensing agreements for these benchmarks that we expect will enable us to deliver significant value."

The benchmark changes will be staggered over a number of months, and are expected to be completed by mid-2013.

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U.S.-based Vanguard has negotiated licensing agreements with the London-based FTSE Group and the University of Chicago's Center for Research in Security Prices (CRSP), which is part of its business school.

Vanguard hired CRSP in 2009 to create a new series of investable indexes whose methodology is expected to help "minimize transaction costs during periodic rebalancing," Mr. Sauter said.

A total of 18 U.S. ETFs and four Canadian-listed ETFs will be affected. For those funds, Vanguard has been using the popular MSCI indexes, which is also used by rival BlackRock Inc. for many of its iShares ETFs.

In the United States, six Vanguard international ETFs with a total of $170-billion (U.S.) in assets will transition to FTSE benchmarks. That includes the giant $67-billon Vanguard Emerging Markets ETF.

This Vanguard ETF will switch from the MSCI Emerging Markets Index to the FTSE Emerging Index. While the two benchmark are generally comparable, the FTSE Emerging Index excludes South Korea because that country is classified as a developed market.

In Canada, the four affected ETFs are Vanguard MSCI Canada [switching to FTSE Canada Index], Vanguard MSCI U.S. Broad Market [CRSP U.S. Total Market Hedged to Canadian dollars], Vanguard MSCI EAFE [FTSE Developed ex-North America Hedged to Canadian dollars] and Vanguard MSCI Emerging Markets [FTSE Emerging Index].

Vanguard said that no changes are currently planned for its U.S. stock ETFs that track Russell and Standard & Poor's benchmarks, or 11 ETFs that track MSCI benchmarks.

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