Free Benchmark Indexes! Hot

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Let’s begin with the basics. Benchmark indexes are a critical element in how managers explain performance on a relative basis. Over time, this data has become drastically more expensive. According to Joe Mansueto, Morningstar’s chairman and chief executive officer, “Benchmarks are meant to explicitly represent the performance of the underlying markets. As such, we believe market-cap-weighted equity indexes are virtually interchangeable and should be priced accordingly. But they’re not.” In a study by Financial Times, 73 percent of U.S. mutual fund assets are benchmarked to an index from one of only three firms. Rather than charging for indexes, Morningstar will freely provide more than 100 of its indexes for benchmarking purposes - covering most of the U.S. and global equity markets – through the Morningstar Open Indexes Project. The free indexes will include style, sector, global, regional, and country-specific benchmarks covering 45 countries and 21 regions, such as the Morningstar China Index and the Morningstar Emerging Middle East and Africa Index.



The indexes are available via Morningstar’s products, including Morningstar DirectSM and a data feed, which is an XML file that feeds the data in a standardized form. Morningstar has been and will continue to be guided on this project through an Advisory Council comprised of 25 firms, including Ariel Investments, Dodge & Cox, Eaton Vance Management, and Guggenheim Investments, among others. As part of the Open Indexes Project, Morningstar created the council, which is committed to driving transparency and accessibility for equity index benchmarking. By joining the Open Indexes Advisory Council, firms are aligning themselves with others that are equally concerned about the rising costs of benchmarking, to collectively explore alternatives to the problem.



Since the free benchmarks will be available to both users and non-users of Morningstar products, the big question is why? Why would Morningstar give something away for free? The answer is two-fold. First, according to Sophie Albsmeyer, product manager of Morningstar Indexes, Morningstar’s focus has always been on what’s best for the end investor. Lowering costs and making data easier to access for advisors can lead to better results and information for investors. Second, with the greater degree of consistency in indexes, it makes sense for consumers of this data to utilize low-cost resources. Thus, Morningstar is hoping to become the index standard in the marketplace – for their free as well as their priced indexes.



In any event, more information available to more people is good news.

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