This is a hidden column


Open Indexes: Disrupting an Industry to Benefit Investors

Benchmark indexes must be soundly constructed, trusted, and accessible

Dan Lefkovitz


Good equity indexing starts with a long-running data set that’s free of survivorship bias—not just for prices and dividends but also corporate actions like mergers, acquisitions, spinoffs, and delistings. It continues with the principles of benchmark design, including completeness, investability, low turnover, and clear and published rules.

Regulators note that it’s not enough for benchmark indexes to be soundly constructed; they must also be trusted and accepted. Investors look to indexes to measure risk and return, and to make critical portfolio allocation decisions. Independence matters.

Why we made benchmark indexes accessible

Ultimately, indexes designed to reflect the performance of the same market segment are interchangeable. It’s the same conclusion that Vanguard reached in 2012 when it switched benchmarks on 22 funds. It was echoed by a 2016 paper published by the Spaulding Group that concluded: “There is minimal difference between several index providers that serve the U.S. and global equity markets in terms of performance.”

We believe that the importance of indexes as analytical tools means they should be widely accessible. Unfortunately, the dominant index providers are fighting against trends toward lower costs and the free flow of information. As the industry has consolidated, benchmark data licensing costs have risen at rates far exceeding inflation.

The Morningstar Open Indexes Project launched in November 2016 with the goal of disrupting the industry on behalf of investors. Through Open Indexes, Morningstar offers holdings and returns data for 125 equity market exposure indexes—at no cost. The roughly 100 Open Indexes’ participants include asset managers, wealth managers, and distributors spanning the globe.

The Open Indexes Project has made a big impact in a short time

Like the open-source software movement that inspired its name, the Open Indexes Project has affected meaningful change.

For instance, over the past two years, actively managed equity funds—including Diamond Hill and Buffalo in the U.S., ODIN in Norway, and Indep in France—have adopted Morningstar indexes as primary prospectus benchmarks. Not only are Morningstar’s equity indexes available free for benchmarking purposes, the Open Indexes Project also supports asset managers in providing low-cost investment products to investors through a disruptive-fee model. JPMorgan, Lyxor, EuroNext, and the National Bank of Canada have all launched bargain-priced vehicles tracking Morningstar beta indexes.

The Morningstar Open Indexes Project recently won a 2018 Industry Award for being an industry disruptor.

What our research shows about low costs

Morningstar research shows that lower expenses lead to better performance. (Here’s just one example.) Index licensing fees are ultimately passed along to investors, so keeping them down matters. By disrupting an industry, the Open Indexes Project allows Morningstar to work through partners to improve investor outcomes. 

Learn more about the Morningstar Open Indexes Project. 

Take Me There

The Morningstar Retirement Quiz for Advisors

Test your knowledge and get ideas for helping your clients.

Trending Research

Get our latest in-depth analysis and differentiated industry coverage.

Join us at the Morningstar Investment Conference

Register for MIC June 3-5