In response to the escalating cost of market-cap-weighted equity indexes, Morningstar, Inc. has launched the Morningstar Open Indexes Project.
Asset managers, advisers, asset owners, and financial services firms can utilize more than 100 Morningstar global equity indexes for free – for benchmarking purposes only.
The indexes include equity benchmarks across sectors, styles, and regions. Participants will receive price return, total return, net return, and month-end constituent data for indexes included in the project.
The goal of the project is to lower costs for the industry and improve outcomes for investors.
As part of its initiative, Morningstar has created the Open Indexes Project Advisory Council, a community of 25 firms, including Ariel Investments, Dodge & Cox, Eaton Vance Management, and Guggenheim Investments, committed to driving transparency and accessibility for equity index benchmarking.
Several council members told Morningstar that benchmarking is a top-five data expense for their firms. Nearly half of the members reported that relative to other investment components, benchmark licensing costs have risen dramatically over the past two years. Yet, the majority said they have not changed benchmark providers because of switching costs and other barriers.
Council members also say the biggest barrier to switching index providers is the investment selection “infrastructure” that has been built around the existing index providers—namely brand, platform, and uncertainty around other switching costs.
In keeping with Morningstar’s mission to help investors reach their financial goals, the Open Indexes Project offers the industry a new path to lowering costs and ultimately reducing fees charged to individual investors.
Here are a few commonly asked questions regarding Morningstar's indexes.
Why is Morningstar giving away its equity indexes for benchmarking?
Investors today are paying substantially lower fees than when we opened our doors more than 30 years ago.
One industry cost that’s moving in the opposite direction is the fee charged for benchmarking investments. The ability to measure and compare relative performance—that is, to benchmark investments—is extremely important. But only a handful of index providers control the vast majority of the market, and those providers are using their power to dramatically increase fees. According to the Financial Times, 73% of U.S. mutual fund assets are benchmarked to an index from one of three firms.
We’re giving our indexes for benchmarking purposes because we’re concerned that the market is relying on a few providers who are charging top dollar for the data.
We’re taking the first step by offering our indexes for benchmarking purposes for free.
Does this mean fund companies can license Morningstar’s indexes for free to create exchange-traded products?
No. We’re allowing firms to use the indexes for benchmarking purposes only.
How long has Morningstar been in the index business?
We’ve spent nearly 15 years building our equity indexes. They our proprietary research and we use them in all of our products.
What range do the Morningstar indexes cover?
Introduced in 2002, the Morningstar Indexes include a broad range of traditional global equity, fixed income, and commodity indexes that are also combined to form a series of asset allocation indexes.
Morningstar also offers active equity indexes that draw on the company’s equity, fund, and asset allocation research.
Morningstar Global Equity Indexes include both traditional beta and strategic beta benchmarking. The indexes consist of style, sector, factor-based, dividend, analyst advantage, and global equity.
Covering 45 countries and 21 regions, they span global, developed, and emerging markets for 97% of the investable universe by market capitalization.
How successful have Morningstar indexes been?
Assets in investable products that track Morningstar Indexes reached $23.8 billion as of the end of the third quarter of 2016, compared with $17 billion a year ago.
There are now 54 exchange-listed products tracking Morningstar Indexes, with a total of 59 investable products.
You can read more about the indexes here.
