| As
VIPERs Assets Soar, Vanguard Suffers Another Legal Setback
By Jim Wiandt
November 2, 2001 |
|
Even as the total market VIPERs ETF offering from Vanguard drew
a flood of new assets, Vanguard suffered a legal defeat to Standard
& Poor's that was described by a Vanguard spokesman as "final."
Paul Aaronson, Executive Managing Director of Porfolio Services
at Standard & Poor's noted that the decision confirmed that,
"We are the masters of our own universe when it comes to
our intellectual property."
In
dispute had been the Vanguard Group's ability launch exchange-traded
funds (ETFs)
based on S&P indices under their existing licensing agreements.
Vanguard's announcement of its impending launch last year seemed
to catch Standard & Poor's by surprise, as the erstwhile index
provider had apparently entered into agreements that included
exclusivity provisions with another ETF sponsor. Vanguard claimed
throughout the dispute that the new ETFs were simply a share class
of the S&P 500 mutual fund, and fell under the terms of Vanguard's
existing licencing agreements with S&P.
The original U.S. District Court judgment by Alvin K Hellerstein
was handed
down in April. The U.S. Court of Appeals for the Second Circuit
simply affirmed the decision with a brief one page order.
Announcing the Appellate Court decision with a press release
this afternoon, the McGraw-Hill Companies (which owns Standard
& Poor's) expressed pleasure that the Court had accepted S&P's
position in the lawsuit.
“The Appellate Court decision affirms our position that
Standard & Poor’s indexes are the intellectual property
of Standard & Poor’s and that all issuers of financial
products who tie their products to our indexes must abide by the
terms of our license agreements,” said Leo C. O’Neill,
president of Standard & Poor’s. “By re-affirming
Standard & Poor’s rights under its licensing agreements,
the ruling strengthens our ability to work with fund managers
to develop innovative, index-based products that serve the interests
of all investors.”
The Appellate Court agreed with the District Court that the proposed
Vanguard VIPERs were not authorized under the terms of the index
license that Standard & Poor’s had previously granted
to Vanguard to create mutual funds tied to certain S&P indices.
In its decision, the Court accepted Standard & Poor's position
that VIPERs shares represent a fundamentally different type of
investment product than conventional mutual fund shares.
All is Not Lost
Even as it's S&P brethren suffered defeat, the Total Stock
Market VIPERs showed an extraordinary knack for attracting new
assets. After less than 6 months of existance, the Total Market
VIPERs vaulted into the top ten list of ETFs by assets.
| ETFzone
Top 10 |
| |
| SPDR - Standard &
Poors Depositary Receipts |
|
$25,879,420,700 |
| Nasdaq 100 Trust |
|
$20,823,600,000 |
| Midcap SPDRs |
|
$4,144,353,720 |
| iShares S&P 500 |
|
$2,975,154,000 |
| Diamonds Trust - Dow Jones Industrial
Average |
DIA |
$2,814,086,160 |
| iShares Russell 2000 |
|
$1,507,625,000 |
| Technology Select Sector
SPDR |
|
$1,077,324,500 |
| iShares Russell 3000 |
|
$993,172,500 |
| Vanguard Total
Stock Market VIPERs |
VTI |
$899,910,480 |
| Financial Select Sector
SPDR |
|
$805,564,800 |
| &
all
the rest |
Source: Amex data as of 11/02/2001
The interesting thing is that few of the assets have come from
existing shareholders in the traditional fund switching to the
ETF share class. This is in part because of the $50 fee to make
the switch, and also because larger investors can still participate
in the traditional fund with Admiral shares at cheaper expense
ratios than the ETF.
A flood of new assets has entered the VIPERs fund in the last
month or so, and many of the new shareholders have been institutional
investors like Lehman Brothers, Morgan Stanley, and even Fidelity.
New Admiral Shares
Speaking of Admiral shares...Vanguard announced the addition
of an Admiral share class for 18 additional funds including the
Windsor, Midcap and major bond and sector funds.
Global ETF Asset Market Share
State Street Global Advisors released an overview of global ETF
assets by fund manager. Here is a summary of the summary which
lists global ETF asset data as of October 31, 2001.:
| Exchange-Traded Funds |
Global Market Share |
Total Global Assets
US$ Millions |
| |
|
|
| Total
|
|
$82,612 |
| Worldwide,
173 FUNDS |
|
|
| State
Street Global Advisors |
42.48% |
$35,090 |
| 38
Funds |
|
|
| Bank
of New York |
29.25% |
$24,166 |
| 2
Funds |
|
|
| Barclays
Global Investors |
19.72% |
$16,289 |
| 97
Funds |
|
|
| The
Vanguard Group |
1.06% |
$880 |
| 1
Fund |
|
|
| LDRs
|
1.05% |
$870 |
| 2
Funds |
|
|
| IndexCO |
0.39% |
$325 |
| 1
Fund |
|
|
| OM
group |
0.09% |
$75 |
| 1
Fund |
|
|
| IndexChange |
1.04% |
$857 |
| 16
Funds |
|
|
| Ofek
Leumi |
0.08% |
$66 |
| 1
Fund |
|
|
| Societe
Generale |
1.12% |
$928 |
| 3
Funds |
|
|
| TD
Securities |
0.18% |
$146 |
| 2
Funds |
|
|
| Credit
Suisse |
0.47% |
$391 |
| 1
Fund |
|
|
| AXA
Gestion |
0.08% |
$66 |
| 3
Funds |
|
|
| Daiwa
Asset Mgmt. |
0.70% |
$575 |
| 2
Funds |
|
|
| Nomura
Asset Mgmt. |
1.53% |
$1,262 |
| 2
Funds |
|
|
| Nikko
Asset Mgmt. |
0.64% |
$526 |
| 1
Fund |
|
|
Source: State Street Global Advisors. Data
as of 10/31/2001
Dr. Index Has Left The Building
Unconfirmed reports indicate that Barclays Global Investor's
Brad Zigler, the venerable Dr. Index of iShares Web site fame,
has left the company. Zigler was the head of investor education
at BGI.
