Analysis: FTSE U.S. growth plans portend stock index price war

Fri Oct 5, 2012 7:09pm EDT
Email This Article |
Share This Article
  • Facebook
  • LinkedIn
  • Twitter
| Print This Article | Single Page
[-] Text [+]

By Rodrigo Campos and Jessica Toonkel

NEW YORK (Reuters) - London Stock Exchange Group's (LSE.L: Quote) FTSE Group is planning a major expansion in the United States that will challenge rivals and could trigger a price war among providers of stock indexes for use by fund groups eager to cut costs.

On Tuesday, FTSE lured away Vanguard Group from MSCI Inc (MSCI.N: Quote) for six international stock funds with $170 billion of assets, as the largest U.S. mutual fund manager looked to cut costs.

"We clearly have ambition to grow our share of the ETF market further," said Jonathan Horton, president of FTSE North America.

Horton said FTSE serves 40 different product issuers today, but wants to increase that number substantially.

FTSE's expansion plans challenge rival index providers to find ways to keep selling their products to the funds they rely on for much of their revenue. Fees to license an index typically range from 0.02 percent to 0.30 percent of the fund's assets. U.S. exchange traded funds, or ETFs - baskets of securities like mutual funds that trade on exchanges like individual securities - hold more than $1.2 trillion in assets.

After the Vanguard deal, FTSE will have the money it needs to build a stronger brand in the United States, said an executive at an exchange-traded funds firm that has funds tracking FTSE indices.

"One of the challenges with working with FTSE is that they do not do a lot of marketing support like webinars and education to clients," the executive said, requesting anonymity as he was not authorized to speak to the press. "Now that they walked into this brand-new money, I think you will see a brand lift."

Horton noted that index providers require expensive research and innovation, which may limit fee cuts. But other experts said cutting fees will be a tempting growth strategy at a time when big fund companies such as Vanguard, Charles Schwab (SCHW.N: Quote) and BlackRock (BLK.N: Quote) are looking to cut costs.   Continued...