What’s An Index Worth?
Vanguard’s recent decision to switch benchmark providers on half a trillion dollars of assets has thrown the indexing world into turmoil.
What’s an index worth to its provider? Put another way, how much should an investor expect to pay for the benchmark underlying an index-tracking fund?
Industry participants offer very different answers to this question, revealing tensions that go to the heart of how the asset management business operates.
A radical view of the indexing world, but one that’s apparently gaining traction, suggests that only a few large equity benchmarks have real brand value.
According to Steffen Scheuble of index provider Structured Solutions, maybe 10-20 indices worldwide fall into this category. He didn’t tell me what he thinks they are, but we can probably all come up with the likely names—S&P 500, MSCI World, Dow Jones industrial average, FTSE 100, Euro STOXX 50, Nikkei 225, DAX, CAC 40, plus a few more.
A couple of weeks ago, I’d have added the MSCI Emerging Markets index to the list, but Vanguard’s recent decision to ditch that benchmark for a lower-cost index offered by FTSE suggests the premium brand-name group might be shrinking.