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Friday, June 25, 2010|
McNabb Focuses on Trust While S&P Licenses More Broadly
Vanguard's decision to roll out new funds and share classes indexed to Standard & Poor's benchmarks catches the attention of Friday's WSJ Fund Track column. The move puts Vanguard in direct competition with SSgA's SPDR S&P 500 ETF and BlackRock's iShares S&P 500 Index Fund. Vanguard is betting its edge will come down to cost (its version will run 6 basis points compared to 9.45 bps and 9 bps).
Mentioned, but not deeply examined, is the end of a decade-old rift between Vanguard and Standard & Poor's that led to Vanguard's dropping the index as its benchmark in 2000. The paper does point out that Morningstar reported on the rift and that it was resolved when an exclusivity agreement expired. The Morningstar article also wonders about Vanguard's decision to add S&P and Russell indices for "style" sector funds that would seem to be a reversal from its 2003 decision to rely on MSCI (and drop S&P).
Standard & Poor's also recently licensed its benchmarks to seven European ETFs and an Indian firm that will create a Rupee denominated version of its flagship benchmark.
Meanwhile, Vanguard CEO Bill McNabb took the stage Thursday in Chicago during one of the Morningstar Conference keynote presentations.
Morningstar's coverage of the event shows he did not focus on the changes to Vanguard's fund lineup, but instead addressed investors loss of faith in financial firms.
Referring to events since the financial crisis of 2008, McNabb stated that "Trust has been damaged. Faith has been shaken."
McNabb said he supports efforts to create more transparency for derivatives through a central clearing exchange and for the creation of a Financial Services Oversight Council that would watch out for systemic risks.
He added that he is worried about rules that would give the FDIC discretion over which creditors of failed banks are paid.
"I'm sure the intentions behind the proposal were noble. But in its effort to decrease systemic risk, it would actually inject a new level of risk into the credit markets and essentially wipe out decades of bankruptcy law." McNabb said, according to Morningstar.
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