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By Jason Stipp | 10-03-2012 04:00 PM

Vanguard Index Swap All About Cost

The switch from MSCI to FTSE and CRSP indexes for 22 Vanguard funds is all about three things, says Vanguard principal Joel Dickson: cost, cost, cost.

Jason Stipp: I'm Jason Stipp for Morningstar.

Vanguard this week announced changes to 22 benchmark index funds for some domestic and international stock funds; they are swapping out MSCI indexes and putting in indexes from FTSE and also from CRSP.

I'm checking in today with Joel Dickson; he's a senior ETF strategist and principal at Vanguard. He's going to give us a little more insight into that change and what they expect it means for investors.

Thanks for being here, Joel.

Joel Dickson: Well, thanks for having me, Jason.

Stipp: First question for you: the decision to change these indexes, was this primarily a decision about the fees that Vanguard is paying for the use of the indexes, or was this a decision about, we think these indexes are really superior to the MSCI indexes?

Dickson: So, to be clear, we think it's about the fees the investor was paying to access the indexes through our funds and our ETFs.

There were three main reasons for this change and its cost, cost, and cost. So, at this point what we've seen over the course of the last decade or so is a real convergence in terms of index methodology to a set of best practices that we first were talking about 10 years ago, and really the major index providers have all converged upon that set of best practices. So, it's not about a better index or better index construction; it is about having cost certainty, long-term cost savings for our shareholders.

Stipp: I think most investors are familiar with the FTSE indexes, but I think the CRSP indexes are the less well known, and I think Vanguard actually has worked with the University of Chicago, which is who basically created these indexes. Can you give a little background on those indexes and the makeup, and the history of them?

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