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Which ETF Providers Dance With Which Index Firm?

Which ETF Providers Dance With Which Index Firm?

ETFs are largely passively managed, but the index providers they rely on vary, even within the same markets.

Most ETFs are passively managed, with the issuer’s portfolio managers following the rulebook created by the index provider.

Yet, investors do not appreciate which issuers work closely with which index providers, and why it matters. Leveraging the new global ETF data and analytics from First Bridge Data, which CFRA acquired this month, we dig into the relationship between the five largest equity ETF managers and the five largest index providers. 

There was $1.3 trillion in equity ETFs tracking an S&P Dow Jones Index (SPDJI) as of June 2019 and strong representation across the five largest ETF providers.

This stands out relative to MSCI ($564 billion) and FTSE Russell ($548 billion), the second- and third-largest equity index providers, which have deep penetration at select asset managers and are largely absent from others.

Meanwhile, iShares equity ETF assets are well-diversified across the top-three index providers, but Vanguard and SSGA are different. Vanguard has more assets tied to the fourth-largest equity index provider, the Center for Research in Security Prices (CRSP), than any other provider, while SSGA’s equity ETF presence is dominated by its connection with S&P Dow Jones.



iShares equity ETF business was spread across the three largest index providers, with 39% tied to SPDJI Indices, 38% to MSCI and 20% to FTSE Russell, and just 3% to all others. Though iShares has successfully expanded its lineup with smart beta strategies—tied to low volatility, growth/value and dividends—broadly diversified, market-cap weighted products are still the dominant offering. iShares Core S&P 500 (IVV), iShares Core S&P Mid-Cap ETF (IJH) and iShares S&P 500 Growth (IVW) are examples of highly popular SPDJI-based products.

Meanwhile, broadly diversified international funds iShares Core MSCI EAFE ETF (IEFA), iShares Core MSCI Emerging Markets (IEMG) and smart-beta iShares Edge MSCI Minimum Volatility USA (USMV) are examples of MSCI-based funds.



Vanguard’s equity ETF business is more exposed to FTSE Russell (30%) and CRSP (38%), than SPDJI (17%) and MSCI (11%). Vanguard FTSE Developed Markets (VEA), Vanguard FTSE Emerging Markets (VWO) and Vanguard High Dividend Yield (VYM) are the largest of the FTSE Russell–based products. The asset manager’s FTSE Russell lineup is largely cap-weighted.

Vanguard is also the sole provider to license the CRSP indexes to support its ETFs. Broadly diversified Vanguard Total Stock Market (VTI) is the largest, but investors have also gravitated toward style-focused, yet cap-weighted Vanguard Value (VTV) and Vanguard Growth (VUG).

CFRA thinks investors easily miss the importance of which firm provides the index an ETF tracks and why it matters how stocks and countries inside are classified. Index providers do not mirror one another.

For example, iShares’ IEMG had a recent 13% stake in South Korea, as MSCI classifies companies, such as Samsung Electronics, to be emerging-market-domiciled. Yet, peer VWO has no exposure to South Korea, as FTSE Russell classifies the country as a developed market like France and Japan. Samsung can be found inside the developed market Vanguard fund VEA.

While CFRA does not rely solely on past performance with our ETF ratings, as others do, IEMG’s 10.1% three-year annualized total return as of the end of June 2019 was stronger than VWO’s 9.2% despite an identical expense ratio—evidence that underlying holdings make a difference for ETF performance. CFRA has ratings on more than 1,500 ETFs based on a combination of holding-level analysis and fund attributes.



SSGA, which is the third-largest U.S. ETF provider, stands out relative to its peers for its dependence on SPDJI to provide the tracking benchmarks. A whopping 97% of SSGA’s equity ETF assets were tied to S&P 500 Index–based products or other indexes within the family. SPDR S&P 500 (SPY) remains larger than the S&P 500 Index funds offered by iShares and Vanguard, but sector slices of the benchmark further contributed to SSGA’s exposure to this index provider.

Financial Select Sector SPDR (XLF) and Technology Select Sector SPDR (XLK) are the two largest, with recent assets of $24 billion and $21 billion, respectively. Four other Select Sector SPDR ETFs were also among SSGA’s 10 largest equity ETFs tied to SPDJI.

The top ETF asset managers leverage different indexes from the major index providers to support their growing equity fund presence. But what is most important is that whether the index name is listed on the label or not, investors would benefit from looking inside the portfolio to understand the exposure they are, or are not, incurring. Most investors own ETFs from multiple asset managers but often fail to realize there is also diversification in the index providers behind these funds.


Todd Rosenbluth is the director of ETF and mutual fund research at CFRA. Learn more about CFRA's ETF research here.

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