Last month, I mentioned that Morningstar had bought the Center for Research in Security Prices (CRSP) from the University of Chicago. CRSP started out as a non-profit, but was later converted to an LLC and sold for $375 million. Vanguard used these low-cost indexes to keep their expense ratios extremely low, and I expressed concern over this as Morningstar is a for-profit, publicly-traded corporation. This contrasts with Vanguard’s famous “at-cost” structure.
Vanguard just announced that starting in July 2026, Vanguard will add the “Morningstar” brand to 13 different US stock index funds (across 51 different share classes). Just a few examples:
- Vanguard Morningstar Total Stock Market ETF (VTI)
- Vanguard Morningstar Large-Cap ETF (VV)
- Vanguard Morningstar Value ETF (VTV)
- Vanguard Morningstar Small-Cap Value ETF (VBR)
Was this a strategic blunder on Vanguard’s part? CRSP basically only had one client: Vanguard. According to RIABiz, “Vanguard funds accounted for 97% of all assets tracking CRSP indices” at the time of sale.
Vanguard should have either bought CRSP themselves or switched to in-house indexes. In-house indexes are exactly how Fidelity offers their ZERO fund line with 0.00% expense ratio. The Four Fidelity ZERO Funds:
- Fidelity ZERO Total Market Index Fund (FZROX) tracks the Fidelity U.S. Total Investable Market Index.
- Fidelity ZERO Large Cap Index Fund (FNILX) tracks the Fidelity U.S. Large Cap Index.
- Fidelity ZERO Extended Market Index Fund (FZIPX) tracks the Fidelity U.S. Extended Market Index.
- Fidelity ZERO International Index Fund (FZILX) tracks the Fidelity Global ex U.S. Index.
I don’t think poorly of Morningstar, but at the same time they did not create these indexes out of some exceptional skill or store of knowledge. Morningstar does make other (not so popular) indices, but they just bought these from a university that needed money.
I can only speculate that Morningstar went to Vanguard and said something like “We own these indexes now. We’ll keep the price the same so your expense ratios don’t blow up… IF you add our name to every fund that uses them.” They get name recognition in lieu of bigger cash payments. Here’s what RIABiz says:
A Vanguard spokesman confirms better economics in the form of “cost certainty,” is part of the “agreement,” following the rebrand. “Consistent with our longstanding commitment to low-cost investing, our agreement includes long term cost certainty for Vanguard,” he says, in an email.
“Cost certainty” may prove a polite way to say that Morningstar can’t use its monopsonistic market power to ask for a bigger cut of revenues over time.
Overall, seems like a clever move my Morningstar, not so much from Vanguard. Vanguard does use other index providers like Russell and FTSE, but historically do not use their name on their flagship low-cost index funds.
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I agree with you. This is Morningstar having Vanguard over a barrel, giving them an offer they can’t refuse. Put our name in your fund names, or we jack up your expense ratio. It would not surprise me if Vanguard migrates to in-house indexes with non-proprietary selection rules like what Fidelity does. Surely the process to make these particular indexes can’t be proprietary. Kind of like “you can copy my homework but make it a little different.”
This is interesting and new to me so I have a bunch of questions.
1. Monopsonistic means a single buyer as opposed to a monopoly which is a single seller. Isn’t Vanguard the only/primary buyer of CRSP’s data and wouldn’t that give Vanguard leverage to keep prices low? I guess I have no idea how difficult it would be to use another index provider or bring it in-house.
2. I’d never thought of it but what does an index provider do? Isn’t the information publicly available?
3. Morningstar is another name of Lucifer right? Surely we can trust them.
Monopsonistic. Learned a new word today. Thanks Jonathon. I imagine if Morningstar becomes too onerous about the cost. Vanguard could easily say goodbye and set up their own indices.
This is a war of retrenchment. The mainstream investing industry has consolidated down to Vanguard, Schwab, and Fidelity. All other players are just footnotes. Most investors now understand that (for the funds listed above), asset class x fees = performance.
“Forcing” Vanguard to identify the source of its indexes isn’t a big deal IMO. Yes, maybe they should go to a ZERO model or something. But for now, it’s just a way for Morningstar to stay in people’s minds. I don’t think the non-Bogle Vanguard management team has ever been proactive or meaningfully strategic. Clock punchers and resting on their laurels for decades vs. Schwab and Fidelity.