Van Eck moves further into the self-indexing camp with changes on two ETFs.
Van Eck, the fund provider behind the Market Vectors ETFs, is replacing two third-party indexes used to benchmark its coal and gaming ETFs with proprietary indexes effective Sept. 24.
The $194 million Market Vectors Coal ETF (NYSEArca: KOL) and the $58 million Market Vectors Gaming ETF (NYSEArca: BJK) will track Market Vectors global-in-scope indexes created specifically for the strategies. The ETFs currently track the Stowe Global Coal Index and the S-Network Global Gaming Index, respectively.
Van Eck’s Germany-based indexing unit launched the benchmarks in May. Its coal strategy tracks companies that derive revenue from coal production, mining, storage and transportation—names like Peabody Energy and China Shenhua Energy—while its in-house gaming index zooms in on companies linked to casinos and casino hotels, sports betting, lottery services as well as gaming services and gaming technology.
Many Market Vectors ETFs are already tied to in-house indexes, and KOL and BJK now fit that bill. New York-based Van Eck, which has long been known as a fund manager, has also been slowly expanding its Market Vectors indexing unit and becoming a big player in the self-indexing ETF provider space.
Apart from Van Eck, ETF firms already involved in self-indexing include WisdomTree and IndexIQ. Also, a number of firms are seeking regulatory permission to self-index, perhaps most notably BlackRock, the parent of the world’s biggest ETF firm iShares.
One of the main motivations for self-indexing appears to be cost-cutting by steering clear of indexing licensing fees, though some indexing industry sources, such as Steffen Scheuble, head of Germany-based indexer Structured Solutions AG, question whether it really is cheaper and more effective than using external indexes.
A Growing Trend
Many indexing agreements dating from the earliest days of the almost-20-year-old ETF industry were based on a percentage-of-assets basis, which has led those costs to balloon as the size of funds has grown. But people like Scheuble stress that index agreements come in all kinds of forms these days, including one-time fees.
Some also worry about the possible ramifications of this trend; namely, conflicts of interest, index manipulation and lack of brand-name recognition the large independent index providers, such as that S&P Dow Jones Indices, MSCI and FTSE bring to the table.
Still, self-indexing is a trend in the ETF market that is gaining momentum even if it’s raising eyebrows as it gathers steam. Apart from iShares, other ETF firms looking to enter the world of self-indexing include Guggenheim Partners as well as FlexShares, the ETF arm of Midwestern banking powerhouse Northern Trust.
To capture this growing trend, IndexUniverse has run a series of interviews with some of the key figures in the world of indexing, including S&P Dow Jones Indices Chief Executive Officer Alex Maturri and WisdomTree’s head Jonathan Steinberg, who take opposing sides of the argument.
KOL’s and BJK’s new indexes will not affect ticker or expense ratios for the funds.