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Wednesday, December 26, 2012

Is Self-Indexing Causing Conflicts?

News summary by MFWire's editors

Some say self-indexing cuts costs for ETF investors, others say the move just kicks a hornets’ nest.

According to Bloomberg, some in the industry are expressing concerns about the transparency of these new "no-name" indexes and concerns over potential conflicts of interests. In particular, opponents to self-indexing cite potential problems around the pricing of index constituents, the embedding of poorly disclosed costs, suboptimal index construction methodology, and incentives to tweak the index rules to boost performance.

However, Morningstar says advocates of self-indexing see it as a way to offer investors lower fees, provided they're willing to accept an ETF that tracks a nonbranded index.

Firms noted in the story include WisdomTree and IndexIQ, which are both self-indexers.  

Edited by: Tommy Fernandez


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