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Wednesday, October 03, 2012

Sauter Boils Down Vanguard's Shift

Reported by Neil Anderson, Managing Editor

When Vanguard [profile] drops index provider MSCI from more than half a trillion in assets, the cost-savings for mutual fund shareholders will be long-term, not immediate.

Vanguard officially revealed the switch yesterday, and MSCI's stock price fell 27 percent.

The Malvern, Pennvsylvania-based mutual fund giant's chief investment officer, Gus Sauter, revealed that tidbit yesterday in a video interview with Vanguard public relations principal Rebecca Katz [see the video here and the transcript here].

Sauter confirmed that Vanguard will the "first commercial index client" for the 52-year-old University of Chicago Center for Research in Security Prices (CRSP). CRSP's indexes will power 15 U.S. stock and balanced index funds, while FTSE indexes will power six international stock index funds. Several other Vanguard funds already use FTSE indexes.

The switch away from MSCI, Sauter said, "boils down to both cost and construction."

"We expect the move will result in considerable savings to our investors over time," Sauter told Katz, noting that the new deals with CRSP and FTSE are long-term. "There will be no immediate impact on the funds' expense ratios, but the change will provide long-term cost savings and long-term cost certainty."

Sauter also confirmed that, since FTSE classifies Korea as a developed market and not an emerging one, over the next 25 weeks, Vanguard's Korean exposure will shift from its Emerging Markets Index Fund to developed markets offerings. 

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