Vanguard Deal A Splashy First For CRSP

October 04, 2012

CRSP’s indexing deal with Vanguard may be a first, but the venerable group is ready for its close-up.


CRSP, the research center that’s part of the University of Chicago’s Booth School of Business, may soon become a well-known brand in the world of investments thanks to Vanguard Group’s decision to begin using CRSP indexes on 16 U.S.-focused Vanguard funds next year.

While any indexing-industry veteran knows the Center for Research in Security Prices is as prestigious a name as you can find, the deal with Vanguard announced this week marks the very first time the group has actually marketed investable indexes, and is the start to a new chapter in the group’s history.

CRSP is a nonprofit group of 75 academics and researchers that has been around since the mid-1960s generating data and benchmarks that were used primarily in the rarified air of academia. But the agreement with Vanguard will almost surely put CRSP on many investors’ radar screens for the first time.

Among the funds that CRSP will now provide indexes for is the $23.5 billion Vanguard Total Stock Market ETF (NYSEArca: VTI)—an index-investing purist’s security that canvasses just about the entire U.S. stock market, and will cover a bit more of it once the transition to the CRSP US Total Market Index takes place.

“When indexing and ETFs became so popular, I think they looked at that and said, ‘We have the premier database here, so we could probably create some indexes and generate some profit for CRSP,’” Rick Ferri, founder of Troy, Mich.-based Portfolio Solutions and a well-known indexer said in an interview with IndexUniverse.

An introduction among friends years ago led to a collaboration with Vanguard that resulted in CRSP’s complete overhaul of its index product line, and of course the partnership on the 16 indexes that shook up the world of indexing this week, CRSP Chief Operating Officer David Barclay told IndexUniverse this week.

“This has been a long-term process,” Barclay said in the interview, echoing the thrust of what Vanguard Chief Investment Officer Gus Sauter told IndexUniverse; namely, that Vanguard’s decision to shift indexes on some of its funds has been in the works for quite some time.

Vanguard also decided to change indexes on six international funds to benchmarks provided by FTSE. When all the transitions are finished on the 22 funds, Vanguard is likely to save “millions” in licensing costs, according to Sauter.

On the losing end of both the FTSE and the CRSP deals is MSCI, which said the loss will cut $24 million of operating income from around $900 million in annual revenues.

Vanguard Stresses Cost Savings

Vanguard officials have gone to great lengths emphasizing that lower indexing licensing fees led it to decide to make the transitions to the both the FTSE and CRSP indexes.

They’ve downplayed any differences in returns between the indexes, stressing instead that costs can be controlled and that it intends to pass on whatever savings it realizes on the changes to investors.

No one seems willing to talk about the exact terms of the two indexing deals, so it’s not clear how much less than the $24 million it was forking over to MSCI that Vanguard will be paying FTSE and CRSP when all the transitions are complete sometime in 2013.

“This is a great day for investors,” Rodney Comegys, an executive in Vanguard’s Equity Investment group, said in a phone interview, epitomizing the gist of comments officials at the Valley Forge, Pa.-based firm have made to explain the index transitions.

Comegys emphasized that in the “pure-beta” pocket of index investing that Vanguard travels in, the differences from one broad index to another are likely to be minimal, and that investors are likely to respond more to low costs or the Vanguard brand name than the name of, say, an indexing firm.


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