Report : Investment | January 02, 2024

What to consider when selecting an index fund manager

As index fund expense ratios drift toward 0%, should price and benchmark tracking remain the sole criteria for selecting an index fund manager? Some asset managers would have plan sponsors believe they are obligated to chase the lowest-cost option. But the courts and regulators have been clear that context counts when evaluating the reasonableness of fees—that there’s more to the story than expense ratios alone.

When evaluating an index fund provider, consultant and plan sponsor fiduciaries will want to consider other quantitative and qualitative factors such as:

  • Organizational incentives and expenses.

  • Portfolio management capabilities.

  • Securities-lending programs.

  • Fair-value pricing policies.

  • Scale.

A newly updated Vanguard paper examines these and other criteria fiduciaries should consider when choosing an index fund manager.